<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 1996
REGISTRATION NO. 333-00008
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CITI-BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 6711 59-2298309
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation) Classification Code Number) Identification No.)
</TABLE>
1211 NORTH BOULEVARD WEST
LEESBURG, FLORIDA 34738-5351
(904) 787-5111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
KENNETH W. MULLIS
CITI-BANCSHARES, INC.
1211 NORTH BOULEVARD WEST
LEESBURG, FLORIDA 34738-5351
(904) 787-5111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
RALPH F. MACDONALD, III C. DANIEL HICKS
ALSTON & BIRD HICKS & MACQUARRIE
1201 WEST PEACHTREE STREET 2303 SOUTHEAST 17TH STREET
ATLANTA, GEORGIA 30309-3424 OCALA, FLORIDA 34471
(404) 881-7582 (904) 351-3353
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
CITI-BANCSHARES, INC.
PART I
CROSS CONFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION CAPTION OF LOCATION IN PROSPECTUS
-------------------------------- ---------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1 Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus . . . . . . . . . Outside front cover page; facing page
2 Inside Front and Outside Back Cover Pages
of Prospectus . . . . . . . . . . . . . . . . . Available Information
3 Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information . . . . . . . . . . . . . . . Summary; Risk Factors; The Merger
4 Terms of the Transaction . . . . . . . . . . . . . . Summary; General Information; The Merger;
Certain Differences in the Rights of CBI and
CFB Shareholders; ANNEX A; ANNEX B
5 Pro Forma Financial Information . . . . . . . . . . . Summary; Pro Forma Condensed Combined
Financial Data
6 Material Contacts with Company Being Acquired . . . . Summary; The Merger; Certain Relationships and
Related Transactions of CFB; Other Matters
7 Additional Information Required for Reoffering
by Persons and Parties Deemed
to be Underwriters . . . . . . . . . . . . . . . Not applicable
8 Interests of Named Experts and Counsel . . . . . . . Not applicable
9 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not applicable
B. INFORMATION ABOUT THE REGISTRANT
10 Information with Respect to S-3 Registrants . . . . . Not applicable
11 Incorporation of Certain Information
by Reference . . . . . . . . . . . . . . . . . . Not applicable
12 Information with Respect to S-2 or S-3 Registrants . Not applicable
13 Incorporation of Certain Information by Reference . . Not applicable
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
14 Information with Respect to Registrants Available Information; Summary; Risk
Other than S-2 or S-3 Registrants . . . . . . Factors; CBI's Management's Discussion &
Analysis of Financial Conditions and
Results of Operations; CBI Compensation of
Executive Officers; Description of CBI
Capital Stock; Supervision and Regulation;
CBI Business; Description of CBI Property;
Management of CBI; Ownership of CBI Common
Stock; Financial Statements
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15 Information with Respect to S-3 Companies . . . . . Not applicable
16 Information with Respect to S-3 or S-2 Companies . Not applicable
17 Information with Respect to Companies Other
than S-3 or S-2 Companies . . . . . . . . . . Available Information; Summary; CFB's
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business of CFB; Financial
Statements; Management of CFB; Ownership of
CFB Common Stock; Certain Relationships and
Related Transactions of CFB
D. VOTING AND MANAGEMENT INFORMATION
18 Information if Proxies, Consents or Authorizations are
to be Solicited . . . . . . . . . . . . . . . . . . Available Information; Summary; General
Information; The Merger; Ownership of CFB
Common Stock; Ownership of CBI Common
Stock; Management of CFB; Management of
CBI; CBI Compensation of Executive
Officers; Certain Relationships and Related
Party Transactions of CFB; Certain
Transactions and Business Relationships of
CBI; Other Matters; ANNEX B
19 Information if Proxies, Consents or Authorizations are
not to be Solicited or in an Exchange Offer . . . . Not applicable
</TABLE>
<PAGE> 4
CITIZENS FIRST BANCSHARES, INC.
1601 S.W. College Road
Ocala, Florida 34478
____________, 1996
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
("Special Meeting") of Citizens First Bancshares, Inc. ("CFB") to be held at
the main office of CFB, located at 1601 S.W. College Road, Ocala, Florida, at
4:00 p.m., Eastern Time, on April 11, 1996.
At the Special Meeting, you will be asked to consider and vote upon
the approval of an Agreement and Plan of Merger dated as of October 19, 1995
(the "Merger Agreement"), which provides for the merger (the "Merger") of CFB
with and into Citi-Bancshares, Inc. ("CBI"). If the proposed Merger is
consummated, each outstanding share of CFB common stock (excluding, generally,
shares held directly or indirectly by CFB, and excluding shares held by
shareholders who perfect their dissenters' rights) will be converted into and
exchanged solely for the right to receive that number of shares of CBI common
stock equal to 425,000 divided by the number of shares of CFB common stock
issued and outstanding at the effective time of the Merger. The affirmative
vote of the holders of a majority of the shares of CFB common stock entitled to
vote at the Special Meeting is required for approval of the Merger Agreement.
Enclosed are the (i) Notice of Special Meeting, (ii) Proxy
Statement/Prospectus and (iii) a Proxy for the Special Meeting. The Proxy
Statement/Prospectus describes in more detail the Merger Agreement and the
proposed Merger, including a description of the conditions to consummation of
the Merger and the effects of the Merger on the rights of CFB shareholders, as
well as financial and other information about CFB.
Your Board of Directors has unanimously approved and adopted the
Merger Agreement and consummation of the transactions contemplated therein, and
unanimously recommends that you vote "FOR" approval of the Merger Agreement and
consummation of the transactions contemplated therein.
In view of the importance of the action to be taken, we urge you to
complete, sign and date the enclosed Proxy and to return it promptly in the
enclosed envelope, whether or not you plan to attend the Special Meeting (if
you attend the Special Meeting, you may vote in person, even if you previously
returned your Proxy).
We look forward to seeing you at the Special Meeting.
Sincerely,
TERRY E. TREXLER
Chairman of the Board
<PAGE> 5
CITIZENS FIRST BANCSHARES, INC.
1601 S.W. College Road
Ocala, Florida 34478
__________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON April 11, 1996
__________, 1996
To the Shareholders of Citizens First Bancshares, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders
("Special Meeting") of Citizens First Bancshares, Inc. ("CFB") will be held at
the main office of CFB, located at 1601 S.W. College Road, Ocala, Florida, at
4:00 p.m., Eastern Time, on Thursday, April 11, 1996, for the following
purposes:
1. THE MERGER. To consider and vote upon a proposal to approve
the Agreement and Plan of Merger, dated as of October 19, 1995 (the "Merger
Agreement"), by and between CFB and Citi-Bancshares, Inc. ("CBI"), pursuant to
which, among other matters, CFB will merge with and into CBI (the "Merger") and
each outstanding share (other than shares held directly or indirectly by CBI or
CFB generally or as to which CFB shareholders have perfected their dissenters'
rights) of CFB common stock will be converted into and exchanged solely for the
right to receive that number of shares of CBI common stock equal to 425,000
divided by the number of shares of CFB common stock issued and outstanding on
the effective time of the Merger, all as more fully described in the
accompanying Proxy Statement/Prospectus. A copy of the Merger Agreement is set
forth in ANNEX A to the accompanying Proxy Statement/Prospectus.
2. OTHER BUSINESS. To transact such other business as may
properly come before the Special Meeting or any adjournments or postponements
of the Special Meeting.
Only shareholders of record at the close of business on March 7, 1996,
are entitled to receive notice of and to vote at the Special Meeting or any
adjournments or postponements thereof. Approval of the Merger Agreement and
the consummation of the transactions contemplated thereby requires the
affirmative vote of the holders of a majority of the shares of CFB common stock
entitled to vote at the Special Meeting.
THE BOARD OF DIRECTORS OF CFB UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY.
EACH SHAREHOLDER HAS THE RIGHT TO DISSENT FROM THE MERGER AGREEMENT
AND DEMAND PAYMENT OF THE FAIR VALUE OF HIS SHARES IF THE MERGER IS
CONSUMMATED. THE RIGHT OF ANY SHAREHOLDER TO RECEIVE SUCH PAYMENT IS
CONTINGENT UPON STRICT COMPLIANCE WITH THE REQUIREMENTS OF SECTION 607.1320 OF
THE FLORIDA BUSINESS CORPORATION ACT. THE FULL TEXT OF SECTION 607.1320 AND
SECTIONS 607.1301 AND 607.1302 SETTING FORTH THE RIGHT TO DISSENT IS SET FORTH
IN ANNEX B TO THE PROXY STATEMENT/PROSPECTUS. A SUMMARY OF THE REQUIREMENTS OF
SECTION 607.1320, WHICH IS QUALIFIED IN ITS ENTIRETY BY THE STATUTORY
PROVISION, IS INCLUDED IN ANNEX B. SEE "THE MERGER--DISSENTERS' RIGHTS" IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
__________________________________
Secretary
<PAGE> 6
<TABLE>
<S> <C>
PROSPECTUS PROXY STATEMENT
---------- ---------------
CITI-BANCSHARES, INC. CITIZENS FIRST BANCSHARES, INC.
425,000 SHARES OF COMMON STOCK SPECIAL MEETING OF SHAREHOLDERS
</TABLE>
___________________________
This Proxy Statement/Prospectus is being furnished to holders of
common stock, $.10 par value ("CFB Common Stock"), of Citizens First
Bancshares, Inc., a Florida corporation ("CFB"), in connection with the
solicitation of proxies by the CFB Board of Directors ("CFB Board") for use at
the Special Meeting of Shareholders to be held at 4:00 p.m., Eastern time, on
Thursday, April 11, 1996, at the main office of CFB, located at 1601 S.W.
College Road, Ocala, Florida, and at any adjournment or postponements thereof
(the "Special Meeting").
The purpose of the Special Meeting is to consider and vote upon, among
other things, a proposal to approve an Agreement and Plan of Merger, dated as
of October 19, 1995 (the "Merger Agreement"), by and between CFB and Citi-
Bancshares, Inc. ("CBI"), which provides for, among other things, the merger
(the "Merger") of CFB with and into CBI. See "SUMMARY," "THE MERGER" and ANNEX
A to this Proxy Statement/Prospectus.
Upon consummation of the Merger, each outstanding share of CFB Common
Stock (excluding shares held by CFB or any of its subsidiaries or by CBI or any
of its subsidiaries, in each case other than in a fiduciary capacity or as a
result of debts previously contracted, and excluding shares held by
shareholders who perfect their dissenters' rights) shall cease to be
outstanding and shall be converted into and exchanged solely for the right to
receive that number of shares of CBI common stock, $.01 par value, ("CBI Common
Stock") equal to 425,000 divided by the number of shares of CFB Common Stock
issued and outstanding on the effective date of the Merger (the "Exchange
Ratio"). Assuming that the effective time of the Merger was March 13, 1996 and
that all outstanding options to purchase CFB Common Stock have been exercised,
each share of CFB Common Stock would be exchanged for 1.318 shares of CBI
Common Stock. Holders of CFB Common Stock who intend to dissent will lose
their dissenters' rights of appraisal if they vote for the Merger.
This Proxy Statement/Prospectus also constitutes a prospectus of CBI
relating to the approximately 425,000 shares of CBI Common Stock issuable to
CFB shareholders in the Merger. See "DESCRIPTION OF CBI CAPITAL STOCK" and
"CERTAIN DIFFERENCES IN THE RIGHTS OF CBI AND CFB SHAREHOLDERS." The CBI
Common Stock is currently traded in the over-the-counter market and is quoted
on The Nasdaq Stock Market's National Market. See "SUMMARY--Market Prices and
Dividends."
THE CBI COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS.
SEE "RISK FACTORS" ON PAGE 16 HEREOF.
______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________
THE SHARES OF CBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY.
The date of this Proxy Statement/Prospectus is ___________________,
1996, and it is first being mailed or otherwise delivered to CFB shareholders
on or about such date.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Special Meeting; Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Market Prices and Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Comparison of Certain Unaudited Per Share Data . . . . . . . . . . . . . . . . . 8
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Integration of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Record Date, Solicitation, and Revocability of Proxies . . . . . . . . . . . . . 17
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Recommendation of CFB's Board of Directors . . . . . . . . . . . . . . . . . . . 18
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Distribution of CBI Certificates . . . . . . . . . . . . . . . . . . . . . . . . 23
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . 24
Management and Operations After the Merger . . . . . . . . . . . . . . . . . . . 25
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . 25
Conditions to Consummation . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Amendment, Waiver and Termination . . . . . . . . . . . . . . . . . . . . . . . 27
Conduct of Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . 28
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Resale of CBI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
PRO FORMA CONDENSED COMBINED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . 31
CFB'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Investment Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Deposits and Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . 42
Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Balance Sheet Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Interest Rate Sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Effects of Inflation and Changing Prices . . . . . . . . . . . . . . . . . . . . 48
Noninterest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Noninterest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Provision for Loan Losses, Net Charge-Offs and Allowance for Loan Losses . . . . 53
Allowance for Loan Losses and Risk Elements . . . . . . . . . . . . . . . . . . 55
Nonperforming Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
-ii-
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<TABLE>
<S> <C>
FDIC Insurance Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Effects of Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . 58
BUSINESS OF CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Capital Stock Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Contingencies and Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . 60
Property Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
MANAGEMENT OF CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . 61
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
OWNERSHIP OF CFB COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF CFB . . . . . . . . . . . . . . . . . . . . 63
CBI'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Financial Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Investment Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Deposits and Short-term Borrowings . . . . . . . . . . . . . . . . . . . . . . . 74
Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Balance Sheet Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Changes in Average Interest-Bearing Liabilities . . . . . . . . . . . . . . . . 84
Effects of Inflation, Changing Prices, and Changing Interest Rates . . . . . . . 84
Noninterest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Noninterest Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Provision for Loan Losses, Net Charge-Offs and Allowance for Loan Losses . . . . 87
Allowance for Loan Losses and Risk Elements . . . . . . . . . . . . . . . . . . 88
Nonperforming Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
FDIC Insurance Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Effects of Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . 92
Contingencies and Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . 93
FASB 107 Disclosures About Fair Value of Financial Instruments . . . . . . . . . 93
CBI BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
DESCRIPTION OF CBI PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
MANAGEMENT OF CBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . 98
OWNERSHIP OF CBI COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
CBI COMPENSATION OF EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
CBI Compensation Committee Interlocks and Insider Participation . . . . . . . . 106
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS OF CBI . . . . . . . . . . . . . . . . . . . 107
DESCRIPTION OF CBI CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
CERTAIN DIFFERENCES IN THE RIGHTS OF CBI AND CFB SHAREHOLDERS . . . . . . . . . . . . . . . . 108
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Payment of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
Support of Subsidiary Banks . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Prompt Corrective Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
FDIC Insurance Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Safety and Soundness Standards . . . . . . . . . . . . . . . . . . . . . . . . . 115
Community Reinvestment Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Depositor Preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Fiscal and Monetary Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Enforcement Policies and Actions . . . . . . . . . . . . . . . . . . . . . . . . 117
Legislative and Regulatory Changes . . . . . . . . . . . . . . . . . . . . . . . 118
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
ANNEXES:
ANNEX A -- Agreement and Plan of Merger, dated as of October 19, 1995,
by and between CFB and CBI . . . . . . . . . . . . . . . . . . . . A-1
ANNEX B -- Excerpt from the Florida Business Corporation Act
Relating to Rights of Dissenting Shareholders . . . . . . . . . . . B-1
</TABLE>
-iv-
<PAGE> 10
AVAILABLE INFORMATION
CBI is required to file reports and information pursuant the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act") with the Securities and Exchange Commission
(the "Commission"). Such reports and other information filed by CBI with the
Commission may be inspected and copied at the principal office of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and should be available at the Commission's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement on Form S-4, of which this
Proxy Statement/Prospectus is a part, and exhibits thereto (together with any
amendments thereto, the "Registration Statement"), which has been filed by CBI
with the Commission under the Securities Act of 1933, as amended, and the rules
and regulations thereunder (the "Securities Act"), certain portions of which
have been omitted pursuant to the rules and regulations of the Commission and
to which portions reference is hereby made for further information. Statements
contained in this Proxy Statement/Prospectus concerning the provisions of
certain documents filed as exhibits to the Registration Statement are
necessarily brief descriptions thereof, and are not necessarily complete, and
each such statement is qualified in its entirety by reference to the full text
of such document.
CFB is not subject to the Exchange Act and, accordingly, does not file
reports or other information with the Commission.
ALL INFORMATION CONTAINED HEREIN WITH RESPECT TO CBI AND ITS
SUBSIDIARIES HAS BEEN SUPPLIED BY CBI AND ALL INFORMATION WITH RESPECT TO CFB
AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY CFB.
_________________
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY CBI OR CFB. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS
PROXY STATEMENT/PROSPECTUS RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CBI, CFB, OR ANY OF
THEIR RESPECTIVE SUBSIDIARIES SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE THE
SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS IN ANY JURISDICTION IN
WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL, NOR DOES IT CONSTITUTE THE
SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION WITHIN SUCH
JURISDICTION.
Any statement contained herein or in any supplement hereto shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Proxy Statement/Prospectus to the extent that a statement contained
herein, in any supplement hereto or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement, this Proxy Statement/Prospectus, or any supplement
hereto.
-1-
<PAGE> 11
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. This summary is not intended to be a
complete description of the matters covered in this Proxy Statement/Prospectus
and is subject to and qualified in its entirety by reference to the more
detailed information contained elsewhere in this Proxy Statement/Prospectus,
including the Appendices hereto. A copy of the Merger Agreement is set forth
in ANNEX A to this Proxy Statement/Prospectus and reference is made thereto for
a complete description of the terms of the Merger. Shareholders are urged to
read carefully the entire Proxy Statement/Prospectus, including the Annexes.
As used in this Proxy Statement/Prospectus, the terms "CBI" and "CFB" refer to
such corporations, respectively, and, except where the context otherwise
requires, their respective subsidiaries.
PARTIES TO THE MERGER
CBI and CFB are parties to the Merger Agreement. Each of such parties
is described below.
CBI
CBI is a Florida corporation that is registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") as a "bank
holding company" under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). Through its banking subsidiary, CBI provides a wide range of
commercial and retail banking services, trust services and various other
financial services in central Florida. Its principal subsidiary is Citizens
National Bank of Leesburg ("CNBL"), a national banking association that is a
member of the FDIC. CNBL currently operates six full service banking offices
in Lake County, Florida, one in Sumter County, Florida, and one in Marion
County, Florida.
For the year ended December 31, 1994, and the nine months ended
September 30, 1995, CBI reported net income of approximately $6.0 million and
$4.8 million, respectively. As of September 30, 1995, CBI had consolidated
deposits of $404.2 million, consolidated assets of approximately $460.0
million, and consolidated shareholders' equity of approximately $43.1 million.
For the year ended December 31, 1995, CBI reported net income of approximately
$6.6 million, total assets of $480 million and shareholders' equity of $46.4
million.
While the Merger is CBI's first acquisition, CBI expects to continue
to evaluate acquisition opportunities from time to time. As a result,
acquisition discussions and, in some cases, negotiations may take place.
Future acquisitions involving cash, debt or equity securities may arise.
Acquisitions may involve the payment of a premium over book and market values
and, therefore, some dilution of CBI's book value and/or net income per common
share may occur in connection with any such future acquisitions. See "PRO
FORMA CONDENSED COMBINED FINANCIAL DATA."
CBI's principal executive offices are located at 1211 North Boulevard
West, Leesburg, Florida 34748-5351, and its telephone number is (904) 787-5111.
For additional information regarding CBI and its business, see "AVAILABLE
INFORMATION," "--Selected Financial Data" and "SUPERVISION AND REGULATION."
CFB
CFB is a Florida corporation and a bank holding company registered
with the Federal Reserve under the BHC Act. CFB provides a range of commercial
and retail banking services in the communities it serves. Through its bank
subsidiary, Citizens First Bank of Ocala ("CFBO"), CFB currently operates two
full service banking offices located in Marion County, Florida. Pursuant to
the Merger Agreement, CFB will merge with and into CBI, which shall be the
surviving corporation. After consummation of the Merger, CFBO will be merged
into and with CNBL (the "Bank Merger" and collectively with the Merger, the
"Mergers").
For the year ended December 31, 1994, and the nine months ended
September 30, 1995, CFB reported net income of approximately $284,000 and
$418,000, respectively. As of September 30, 1995, CFB had total
-2-
<PAGE> 12
consolidated assets of approximately $39.8 million and consolidated
shareholders' equity of approximately $4.2 million. For the year ended
December 31, 1995, CFB reported net income of approximately $ 644,000, total
assets of $39.5 million and shareholders' equity of $4.5 million.
CFB's principal executive offices are located at 1601 S.W. College
Road, Ocala, Florida 34478, and its telephone number is (904) 732-2223. For
additional information regarding CFB and its business, see "--Selected Financial
Data," "CFB'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," "BUSINESS OF CFB," "SUPERVISION AND REGULATION" and
"FINANCIAL STATEMENTS."
SPECIAL MEETING; RECORD DATE
The Special Meeting will be held at 4:00 p.m., Eastern Time on
Thursday, April 11, 1996, at the main office of CFB, 1601 S.W. College
Road, Ocala, Florida 34478. At the Special Meeting, CFB's shareholders will
consider and vote upon approval of the Merger Agreement and the consummation of
the transactions contemplated therein, and transact such other business as may
properly come before the Special Meeting. The CFB Board has fixed the close of
business on March 7, 1996, as the record date (the "Record Date") for
determining the CFB shareholders entitled to receive notice of and to vote at
the Special Meeting. As of the Record Date, there were 304,480 shares of CFB
Common Stock issued and outstanding and entitled to be voted at the Special
Meeting and such shares were held of record by 434 persons. For additional
information with respect to the Special Meeting, including the Record Date and
votes required for approval, see "GENERAL INFORMATION."
THE MERGER
General
The Merger Agreement provides that CFB shall merge with and into CBI.
Immediately after consummation of the Merger, CFBO will be merged into and with
CNBL (the "Bank Merger"). If the Merger Agreement is approved at the Special
Meeting, all required governmental and other consents and approvals are
obtained and all of the other conditions to the obligations of the parties to
consummate the Merger are either satisfied or waived (as permitted), the Merger
will be consummated. A copy of the Merger Agreement is set forth in ANNEX A to
this Proxy Statement/Prospectus. See "THE MERGER."
Exchange Ratio
The Merger Agreement provides that, at the Merger's effective time
(the "Effective Time"), each outstanding share of CFB Common Stock (excluding
shares held directly or indirectly by CFB or CBI, in each case other than in a
fiduciary capacity or as a result of debts previously contracted, and further
excluding shares held by shareholders who perfect their dissenters' rights)
shall cease to be outstanding and shall be converted into and exchanged for the
right to receive that number of shares of $.01 par value CBI common stock ("CBI
Common Stock") equal to 425,000 divided by the number of shares of CFB Common
Stock issued and outstanding on the effective date of the Merger (the "Exchange
Ratio"). See "THE MERGER--Exchange Ratio."
Vote Required
Approval of the Merger Agreement and consummation of the transactions
contemplated therein require the affirmative vote of the holders of a majority
(152,241 shares) of the outstanding shares of the CFB Common Stock entitled to
vote at the Special Meeting. As of the Record Date, CFB's directors, executive
officers and their affiliates and two additional shareholders, who held
approximately an aggregate of 219,823 shares, or 72.19%, of the outstanding
shares of CFB Common Stock entitled to vote at the Special Meeting, have agreed
to vote their shares of CFB Common Stock in favor of the Merger. As of the
Record Date, CBI held no shares of CFB Common Stock. See "GENERAL
INFORMATION--Vote Required."
-3-
<PAGE> 13
CFB'S SHAREHOLDERS HAVE THE RIGHT TO DISSENT FROM APPROVAL OF THE MERGER
AGREEMENT AND OBTAIN PAYMENT FOR THE FAIR VALUE OF THEIR SHARES OF CFB COMMON
STOCK BY FOLLOWING THE PROCEDURES DESCRIBED IN SECTION 607.1301, ET SEQ. OF THE
FLORIDA BUSINESS CORPORATION ACT ("FBCA"). SEE "THE MERGER--DISSENTERS'
RIGHTS." AND ANNEX B.
Recommendation of the CFB Board
The CFB Board believes that the Merger is in the best interests of CFB
and its shareholders, has unanimously approved the Merger Agreement and
unanimously recommends that the shareholders vote "FOR" approval of the Merger
Agreement and the consummation of the transactions contemplated therein. In
deciding to approve the Merger Agreement and the consummation of the
transactions contemplated therein, the CFB Board considered a number of
factors, including the financial condition, results of operations and future
prospects of CFB and CBI, and the compatibility of the operations of CFB and
CBI. See "THE MERGER--Reasons for the Merger."
Effective Time
If the Merger is approved by the requisite vote of the CFB
shareholders, all required governmental and other consents and approvals are
obtained and the other conditions to the obligations of the parties to
consummate the Merger are either satisfied or waived (as permitted), the Merger
will be consummated at the Effective Time, which will be the date and time that
Articles of Merger, reflecting the Merger, are filed with the Secretary of
State of the State of Florida. Assuming satisfaction of all conditions to
consummation, the Merger is expected to be made effective during the first
quarter of 1996. CBI and CFB each has the right, acting unilaterally, to
terminate the Merger Agreement should the Merger not be consummated by April
30, 1996. See "THE MERGER--Effective Time" and "--Amendment, Waiver and
Termination."
Delivery of CBI Certificates
Promptly after the Effective Time, an exchange agent designated by CBI
will mail each record holder of shares of CFB Common Stock outstanding at the
Effective Time, a transmittal letter (with instructions) to use in effecting
the surrender and cancellation of those certificates in exchange for CBI Common
Stock. CBI shall not be obligated to deliver certificates for CBI Common Stock
or any dividends payable thereon to which any former holder of CFB Common Stock
is entitled until such holder properly surrenders for exchange his certificates
formerly representing shares of CFB Common Stock. The certificate or
certificates so surrendered shall be duly endorsed as CBI may require. See "THE
MERGER--Distribution of CBI Certificates."
Certain Federal Income Tax Consequences
The Merger is intended to be a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). Generally, no gain or loss should be recognized for federal income tax
purposes by CFB shareholders as a result of the Merger, except that gain or
loss will be recognized with respect to cash received by dissenters, if any, or
cash received in lieu of fractional shares. A condition to consummation of the
Merger is the receipt by each of CBI and CFB of an opinion of Alston & Bird,
special counsel to CBI, as to the qualification of the Merger as a tax-free
reorganization and certain other federal income tax consequences of the Merger
and related transactions. Such tax opinion was delivered by Alston & Bird on
March 13, 1996. See "THE MERGER--Certain Federal Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, EACH HOLDER OF CFB COMMON STOCK
IS URGED TO CONSULT HIS OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO HIM OF THE MERGER (INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS).
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<PAGE> 14
Interests of Certain Persons in the Merger
Certain members of CFB's management and the CFB Board have interests
in the Merger in addition to their interests as shareholders of CFB generally.
These include, among other things, provisions in the Merger Agreement relating
to eligibility for certain CBI employee benefits. Terry E. Trexler, the
current Chairman of the CFB Board of Directors, also will become a director of
CBI's Board of Directors (the "CBI Board"). The Merger Agreement provides
that, after the Effective Time, CBI will provide generally to officers and
employees of CFB and its subsidiaries, employee benefits under employee benefit
plans (other than stock options or other plans involving the potential issuance
of CBI Common Stock or cash bonuses), on terms and conditions that, when taken
as a whole, are substantially similar to those currently provided by CBI and
its subsidiaries to their similarly situated officers and employees. For
purposes of participation and vesting (but not benefit accrual) under such
employee benefit plans, service with CFB or its subsidiaries prior to the
Effective Time will be treated as service with CBI or its subsidiaries. As of
February 15, 1996, Mr. Trexler and his affiliates owes an aggregate of
approximately $278,000 to CNBL. These loans were made on an arms-length basis
in the ordinary course of business and were made on the same terms (including
interest rates and collateral) as those prevailing at the time for comparable
transactions with other persons. Such loans do not involve more than the
normal risk of collectibility or represent other unfavorable features. Mr. C.
Daniel Hicks, a director of CFB, has provided legal services to CFB and CFBO
from time to time, including in connection with the Mergers, through Mr. Hicks'
law firm, Hicks & MacQuarrie. As of November 30, 1995, the directors and
officers of CFB beneficially owned no shares of CBI Common Stock. See "THE
MERGER--Management and Operations After the Merger" and "--Interests of Certain
Persons in the Merger."
Conditions to Consummation
Consummation of the Merger is subject to various conditions, including
among other matters: (i) approval of the Merger Agreement by the CFB's
shareholders; (ii) receipt of all governmental and other consents and approvals
necessary to permit consummation of the Merger and the related Bank Merger,
including those of the Federal Reserve and the Office of the Comptroller of the
Currency ("OCC"); (iii) receipt by CBI and CFB of a letter from their
independent auditors to the effect that the Merger will qualify for
pooling-of-interests accounting treatment; and (iv) satisfaction of certain
other usual conditions, including the receipt of the tax opinion discussed
above. CBI and CFB do not anticipate receiving the pooling-of-interests letter
until the closing of the Merger. See "THE MERGER--Conditions to Consummation"
and "--Amendment, Waiver and Termination."
Regulatory Approvals
The Merger is subject to the prior approval of the Federal Reserve.
The Bank Merger is subject to the prior approval of the OCC. The Federal
Reserve and the OCC have approved the Mergers. See "THE MERGER--Regulatory
Approvals."
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<PAGE> 15
Conduct of Business Pending the Merger
Each party has agreed in the Merger Agreement to, among other things,
operate its business only in the ordinary course and to take no action that
would adversely affect its ability to perform its covenants and agreements
under the Merger Agreement. In addition, CFB has agreed not to take certain
actions relating to the operation of CFB pending consummation of the Merger
without the prior written consent of CBI, except as otherwise permitted by the
Merger Agreement, including, among other things: (i) becoming responsible for
any obligation for borrowed money, except in the ordinary course of business
consistent with past practices; (ii) paying any dividends, repurchasing,
redeeming or otherwise acquiring or exchanging any shares of its capital stock,
or, subject to certain exceptions, issuing any additional shares of its capital
stock or giving any person the right to acquire any such shares, or issuing any
long-term debt; (iii) acquiring control over any other entity; (iv) subject to
certain exceptions, granting any increase in compensation or benefits, or
paying any bonus, to any of its directors, officers or employees; (v) modifying
or adopting any employee benefit plans, including any employment contract; or
(vi) modifying, amending or terminating any material contract. See "THE
MERGER--Conduct of Business Pending the Merger."
Termination
The Merger Agreement may be terminated and the Merger abandoned, at
any time prior to the Effective Time by mutual consent of the Board of
Directors of CFB and CBI. In addition, the Merger Agreement may be terminated
and the Merger abandoned, prior to the Effective Time by either CBI or CFB if
(i) the other party materially breaches and does not timely cure such breach of
any representation, warranty, covenant or other agreement contained in the
Merger Agreement, (ii) any consent or approval of certain regulatory
authorities is denied by final nonappealable action of such authority, (iii)
any of the conditions precedent to the obligations of the terminating party to
consummate the Merger cannot be satisfied or fulfilled by April 30, 1996,
including the failure of CFB's shareholders to approve the Merger Agreement and
the transactions contemplated thereby or (iv) the Merger has not been
consummated by April 30, 1996, unless extended. In addition, the Merger
Agreement may be terminated and the Merger abandoned, prior to the Effective
Time by the Board of Directors of CBI if the CFB Board shall have failed to
reaffirm, after CFB shall have received any inquiry or proposal with respect to
an "Acquisition Proposal" (as defined below), its approval of the Merger and
the transactions contemplated by the Merger Agreement (to the exclusion of any
other "Acquisition Proposal"), or shall have resolved not to reaffirm the
Merger. An "Acquisition Proposal" means any tender offer or exchange offer or
any proposal for a merger, acquisition of all of the stock or assets of, or
other business combination involving CFB or the acquisition of a substantial
equity interest in, or a substantial portion of the assets of, CFB. See "THE
MERGER--Amendment, Waiver and Termination".
Accounting Treatment
It is anticipated that the Merger will qualify for treatment as a
"pooling-of-interests" for financial reporting purposes and that CBI and CFB
will receive a letter to such effect from an independent public accounting firm
prior to the Effective Time. See "THE MERGER--Accounting Treatment" and "--
Conditions to Consummation."
Resale of CBI Common Stock
The CBI Common Stock issued in connection with the Merger will be
freely transferable by the holders of such shares, except for those holders who
may be deemed to be "affiliates" (generally including directors, certain
executive officers and 10% or more shareholders) of CFB or CBI under applicable
federal securities laws. See "THE MERGER--Resale of CBI Common Stock."
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<PAGE> 16
Dissenters' Rights
Each holder of CFB Common Stock who perfects his dissenter's rights is
entitled to the rights and remedies of a dissenting shareholder under Sections
607.1301 through 607.1320 of the FBCA, subject to compliance with the
procedures set forth therein. Among other things, a dissenting shareholder who
has perfected his dissenter's rights is entitled to receive an amount in cash
equal to the "fair value" of such holder's shares. A copy of Sections 607.1301
through 607.1320 of the FBCA is set forth in ANNEX B of this Proxy
Statement/Prospectus and a summary thereof is included under "THE
MERGER--Dissenters' Rights." TO PERFECT DISSENTERS' RIGHTS, A SHAREHOLDER MUST
COMPLY WITH SECTION 607.1320 OF THE FBCA WHICH REQUIRES, AMONG OTHER THINGS,
THAT THE SHAREHOLDER GIVE CFB NOTICE OF SUCH HOLDER'S INTENTION TO DISSENT FROM
THE MERGER AGREEMENT PRIOR TO THE VOTE OF THE SHAREHOLDERS OF CFB AT THE
SPECIAL MEETING AND THAT SUCH SHAREHOLDER NOT VOTE SUCH HOLDER'S SHARES IN
FAVOR OF THE MERGER AGREEMENT. ANY CFB SHAREHOLDER WHO RETURNS A SIGNED PROXY
BUT FAILS TO PROVIDE INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH HOLDER'S
SHARES ARE TO BE VOTED WILL BE DEEMED TO HAVE VOTED IN FAVOR OF THE MERGER
AGREEMENT AND THUS WILL NOT BE ENTITLED TO ASSERT DISSENTERS' RIGHTS.
MARKET PRICES AND DIVIDENDS
CBI Common Stock is traded in the over-the-counter market and is
quoted on The Nasdaq Stock Market's National Market ("Nasdaq National Market").
The following table sets forth the high and low sale prices per share of CBI
Common Stock on the Nasdaq National Market, and the dividends paid per share of
CBI Common Stock, with respect to each period subsequent to the listing of CFB
Common Stock on the Nasdaq National Market on March 1, 1994. Prior to March 1,
1994, there was no established public trading market for the CBI Common Stock
and no reliable information is available as to trades of such shares or the
prices at which such shares were traded prior to March 1, 1994. Based upon the
limited information available to it, CBI is aware of transactions which have
resulted in shares being traded between January 1, 1993, and February 28, 1994,
at prices ranging from a low of approximately $8.15 per share to a high of
approximately $13.38 per share.
<TABLE>
<CAPTION>
Annual Dividends Declared
Sale Price Per Share of CBI Per Share of
Common Stock CBI Common Stock (1)
---------------- ---------------------
High Low
---- ---
<S> <C> <C> <C>
1994
- ----
First Quarter (beginning March 1, 1994) . . $ 13.75 $11.25 $ --
Second Quarter . . . . . . . . . . . . . . 15.00 13.00 --
Third Quarter . . . . . . . . . . . . . . . 16.75 14.00 --
Fourth Quarter . . . . . . . . . . . . . . 18.00 15.25 .35(2)
1995
- ----
First Quarter . . . . . . . . . . . . . . . 17.50 15.25 --
Second Quarter . . . . . . . . . . . . . . 18.75 15.25 --
Third Quarter . . . . . . . . . . . . . . . 19.75 17.25 --
Fourth Quarter . . . . . . . . . . . . . . 19.75 18.50 .44(3)
1996
- ----
First Quarter (through March 12, 1996). . . 19.75 17.50 --(3)
</TABLE>
(1) The CBI Board of Directors has amended its dividend policy to declare and
pay quarterly dividends in lieu of annual dividends, beginning in the
first quarter of 1996.
(2) CBI declared a $0.35 per share 1994 annual dividend in the fourth quarter
of 1994.
(3) CBI declared a $0.44 per share 1995 annual dividend in the
fourth quarter of 1995, payable on January 2, 1996.
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<PAGE> 17
On September 28, 1995, the last trading day prior to public
announcement that CBI and CFB had entered into a non-binding letter of intent
to merge, the last reported sale price per share of CBI Common Stock on the
Nasdaq National Market was $19.50, and the resulting equivalent pro forma price
per share of CFB Common Stock pursuant to the Merger Agreement was $25.70. On
October 26, 1995, the last day prior to public announcement that CBI and CFB
had executed the Merger Agreement, the last reported sale price per share of
CBI Common Stock on the Nasdaq National Market was $19.25, and the resulting
equivalent pro forma price per share of CFB Common Stock was $25.37. On March
12, 1996, the last reported sale price per share of CBI Common Stock on the
Nasdaq National Market was $19.25.
There is no established public trading market for the CFB Common
Stock, and no reliable information is available as to trades of such shares or
the prices at which such shares have traded. Based upon the limited information
available to it, CFB is aware of transactions which have resulted in shares
being traded since January 1, 1993, at prices ranging from a low of
approximately $10 per share to a high of approximately $13.44 per share for the
most recent trade prior to announcement of the Merger. To the knowledge of CFB
the only trades since the announcement of the Merger involved 50 shares at a
price of $24.89 per share. CFB has not declared or paid any dividends on CFB
Common Stock since January 1, 1992.
The foregoing information regarding CFB Common Stock is provided for
informational purposes only and due to the absence of an active market for
CFB's shares, should not be viewed as indicative of the actual or market value
of CFB Common Stock.
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following summary presents selected comparative unaudited per
share data for CBI and CFB on a historical basis, on a pro forma combined basis
assuming the Merger had been effective during the periods presented and on an
equivalent pro forma combined basis assuming the Merger had been effective
during the periods presented. The Merger is reflected under the
pooling-of-interests method of accounting and pro forma data is derived
accordingly. The information shown below should be read in conjunction with the
historical financial statements of CBI and CFB, including the respective notes
thereto, appearing elsewhere or incorporated by reference herein and with the
unaudited pro forma financial information including the notes thereto,
appearing elsewhere or incorporated by reference herein. See "AVAILABLE
INFORMATION," "THE MERGER--Accounting Treatment," "PRO FORMA CONDENSED COMBINED
FINANCIAL DATA," and "FINANCIAL STATEMENTS."
-8-
<PAGE> 18
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
NINE MONTHS ENDED ---------------------------------
SEPTEMBER 30, 1995 1994 1993 1992
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
INCOME PER COMMON SHARE
FROM CONTINUING OPERATIONS:
$1.18 $1.48 $1.35 $1.22
CBI Historical
CFB Historical (1) 1.27 .87 1.85 0.46
Pro Forma Combined (2) 1.16 1.41 1.27 1.12
Equivalent Pro Forma (3) 1.53 1.86 1.67 1.48
DIVIDENDS PER COMMON SHARE:
CBI Historical (4) $0.35 $0.31 $0.28
CFB Historical -- -- -- --
Pro Forma Combined (5) 0.35 0.31 0.28
Equivalent Pro Forma (5) 0.46 0.41 0.37
SHAREHOLDERS' EQUITY (BOOK VALUE) SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
PER COMMON SHARE:
CBI Historical . . . . . . . . . . . . $10.64 $ 8.39
CFB Historical . . . . . . . . . . . . 13.11 9.00
Pro Forma Combined (6) . . . . . . . . 10.57 8.25
Equivalent Pro Forma (3) . . . . . . . 13.93 10.87
________________________
</TABLE>
(1) CFB historical income per common share amounts above are calculated
using the retroactive application of the warrants and options during
1995 as described in Note 1 to the table on page 13. The income per
share amounts in the financial statements on page F-12 are calculated
under the modified treasury stock method as of the audit date.
(2) Pro forma combined per CBI common share amounts represent the sum of pro
forma combined amounts for CBI and CFB, divided by pro forma combined
weighted average common shares outstanding.
(3) Equivalent pro forma combined amounts per CFB common share represent the
pro forma combined per CBI common share amounts, multiplied by the
Exchange Ratio of 1.318 shares of CBI Common Stock to be exchanged for
each share of CFB Common Stock (assuming 322,480 shares of CFB Common
stock outstanding as of the Effective Time and no CFB shareholder
exercises dissenters' appraisal rights).
(4) CBI paid annual cash dividends from 1992 through 1995. The CBI Board of
Directors has amended its dividend policy to declare and pay quarterly
dividends in lieu of annual dividends, beginning in the first quarter of
1996, in the judgment of its Board of Directors.
(5) Pro forma combined cash dividends paid per share of CBI Common Stock
represent historical dividends paid per share of CBI Common Stock. In
the fourth quarter of 1995, CBI declared a $0.44 1995 annual dividend,
payable on January 2, 1996. On an equivalent pro forma basis, such
1995 annual CBI dividend per CFB common share would be $0.58. Future
CBI and CFB dividends are dependent upon their respective earnings and
financial condition, capital adequacy, government regulations and
policies and other factors, and are subject to declaration in the sole
judgment of their respective Boards of Directors. See "THE
MERGER--Conduct of Business Pending the Merger" and "SUPERVISION AND
REGULATION--Payment of Dividends."
(6) Pro forma combined amounts represent the sum of pro forma combined
amounts for CBI and CFB, divided by pro forma combined period-end common
shares outstanding.
-9-
<PAGE> 19
SELECTED FINANCIAL DATA
Set forth on the following pages are certain unaudited historical
consolidated selected financial data relating to CBI and CFB, including the
respective notes thereto. See "AVAILABLE INFORMATION" and "FINANCIAL
STATEMENTS."
CBI
SELECTED FINANCIAL DATA
(HISTORICAL)
The following table sets forth selected historical consolidated
financial data of CBI for the periods and at the dates indicated. This
information should be read in conjunction with, and is qualified by, the more
detailed consolidated financial statements of CBI and the notes thereto,
incorporated by reference herein. The information at September 30, 1995 and
1994, and for the nine months ended September 30, 1995 and 1994, is derived
from the unaudited consolidated financial statements of CBI and reflects all
adjustments that, in the opinion of CBI management are necessary for a fair and
consistent presentation of such data. The interim data at and for the nine
months ended September 30, 1995, is not necessarily indicative of the results
of operations which CBI may achieve for the entire year. The financial data
for and at the five years ended December 31, 1994, is derived from CBI's
consolidated financial statements and certain items have been rounded for
presentation purposes. See "AVAILABLE INFORMATION" and "FINANCIAL STATEMENTS."
-10-
<PAGE> 20
CBI
SELECTED FINANCIAL DATA
(HISTORICAL)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- ------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income . . . . . . . . . . . . $ 25,178 $ 21,812 $ 29,594 $ 27,499 $ 27,868 $ 28,206 $ 26,415
Interest expense. . . . . . . . . . . . 12,184 9,037 12,455 11,786 13,517 16,623 16,221
-------- -------- -------- -------- -------- -------- --------
Net interest income . . . . . . . . . . $ 12,994 $ 12,775 $ 17,139 $ 15,714 $ 14,351 $ 11,583 $ 10,194
Provision for loan losses . . . . . . . 255 523 600 1,075 1,400 1,005 876
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision . . 12,739 12,252 16,539 14,639 12,951 10,578 9,318
Noninterest income . . . . . . . . . . 1,688 1,421 2,006 2,574 3,085 2,258 1,452
Noninterest expense . . . . . . . . . . (7,960) (7,644) (10,457) (9,897) (9,326) (5,254) (6,866)
-------- -------- -------- -------- -------- -------- --------
Pretax income . . . . . . . . . . . . 6,467 6,009 8,082 7,315 6,710 4,582 3,904
Income tax provision. . . . . . . . . . (1,699) (1,547) (2,083) (1,842) (1,777) (1,079) (887)
Cumulative effect of change in
accounting principle. . . . . . . . . 0 0 0 255 0 0 0
-------- -------- -------- -------- -------- -------- --------
Net income. . . . . . . . . . . . . . . $ 4,768 $ 4,462 $ 6,005 $ 5,728 $ 4,933 $ 3,503 $ 3,017
BALANCE SHEET DATA:
Loans, net of unearned income . . . . . $220,962 $191,079 $195,958 $176,100 $158,704 $144,553 $121,158
Earning assets . . . . . . . . . . . . 434,853 397,519 402,505 383,735 354,783 322,938 278,567
Assets. . . . . . . . . . . . . . . . . 459,891 422,424 432,888 410,905 377,247 346,679 201,230
Deposits. . . . . . . . . . . . . . . . 404,222 380,763 388,567 364,275 342,864 309,583 271,975
Shareholders' equity. . . . . . . . . . 43,100 36,467 33,976 36,794 28,784 24,986 22,037
Common shares outstanding . . . . . . . 4,052 4,048 4,048 4,050 4,053 4,072 4,109
AVERAGE BALANCE SHEET DATA:
Loans, net of unearned income . . . . . $209,058 $189,167 $186,768 $170,577 $154,347 $136,118 $121,763
Earning assets. . . . . . . . . . . . . 428,225 403,223 400,345 368,847 342,403 305,846 281,986
Assets. . . . . . . . . . . . . . . . . 449,133 416,666 422,465 390,596 363,507 322,438 299,449
Deposits. . . . . . . . . . . . . . . . 398,239 386,812 383,416 357,093 333,747 295,931 269,103
Shareholders' equity. . . . . . . . . . 40,115 36,631 35,155 30,925 26,817 23,082 21,034
Common shares outstanding . . . . . . . 4,052 4,048 4,048 4,050 4,053 4,072 4,109
PER COMMON SHARE DATA:
Income before cumulative effect
of change in accounting principle . . $ 1.18 $ 1.10 $ 1.48 $ 1.35 $ 1.22 $ .86 $ .73
Cumulative effect of change in
accounting principle. . . . . . . . . 0 0 0 .06 0 0 0
-------- -------- -------- -------- -------- -------- --------
Net income. . . . . . . . . . . . . . . 1.18 1.10 1.48 1.41 1.22 .86 .73
Cash dividends declared . . . . . . . . .00 .00 .35 .31 .28 .20 .175
Treasury Stock. . . . . . . . . . . . . .20 .20 .20 .20 .18 .18 .15
Shareholders' equity (book value) . . . 10.64 9.01 8.39 9.08 7.10 6.14 5.36
PERFORMANCE RATIOS:
Return on average assets(1) . . . . . . 1.42% 1.43% 1.42% 1.47% 1.36% 1.09% 1.06%
Return on average equity(1) . . . . . . 15.85% 16.24% 17.08% 18.52% 18.40% 15.17% 14.60%
Net interest margin, taxable equivalent 4.38% 5.25% 4.64% 4.51% 4.51% 4.10% 4.16%
Equity to total assets. . . . . . . . . 9.37% 8.63% 8.73% 8.08% 7.63% 7.16% 7.27%
Dividend payout -- -- 3.65% 21.99% 22.95% 23.26% 23.97%
CAPITAL RATIOS:*
Tier 1 capital. . . . . . . . . . . . . 18.70% 16.75% 17.41% 16.38% 15.34% 14.16% N/A
Total capital . . . . . . . . . . . . . 20.02% 18.09% 18.66% 17.61% 16.24% 15.11% N/A
Leverage. . . . . . . . . . . . . . . . 9.37% 8.63% 8.73% 8.08% 7.63% 7.16% 7.27%
*CURRENT MINIMUM REGULATORY CAPITAL REQUIREMENTS
Tier 1 capital ratio 4.00%
Total capital ratio 8.00
Leverage ratio 3.00-5.00
</TABLE>
(1) Annualized for the nine month periods ended September 30, 1995 and 1994.
-11-
<PAGE> 21
CFB
SELECTED FINANCIAL DATA
(HISTORICAL)
The following table sets forth selected historical consolidated
financial data of CFB for the periods and at the dates indicated. This
information should be read in conjunction with, and is qualified by, the more
detailed consolidated financial statements of CFB and the notes thereto,
included herein. The information at September 30, 1995 and 1994, and for the
nine months ended September 30, 1995 and 1994, is derived from the unaudited
consolidated financial statements of CFB and reflects all adjustments that, in
the opinion of CFB management are necessary for a fair and consistent
presentation of such data. The interim data at and for the nine months ended
September 30, 1995, is not necessarily indicative of the results of operations
which CFB may achieve for the entire year. The financial data for and at the
five years ended December 31, 1994, is derived from CFB's consolidated
financial statements and certain items have been rounded for presentation
purposes. See "FINANCIAL STATEMENTS" and "THE MERGER--Conduct of Business
Pending the Merger."
-12-
<PAGE> 22
CFB
SELECTED FINANCIAL DATA
(HISTORICAL)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------- ----------------------------------------------
1995(2) 1994(2) 1994 1993 1992 1991 1990
------- -------- ----- ------ ------ ------- ------
(in thousands, except per share and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income . . . . . . . . $ 2,283 $ 1,455 $ 2,066 $ 1,756 $ 1,860 $ 2,099 $ 2,740
Interest expenses . . . . . . . 858 317 464 385 660 1,078 1,442
-------- -------- ------- ------- -------- -------- -------
Net interest income . . . . . . $ 1,425 $ 1,138 $ 1,602 $ 1,371 $ 1,200 $ 1,021 $ 1,298
Provision for loan losses . . . 0 0 0 21 50 0 165
-------- -------- ------- ------- -------- -------- -------
Net interest income after
provision . . . . . . . . . . 1,425 1,138 1,602 1,350 1,150 1,021 1,133
Noninterest income . . . . . . . 438 354 491 540 548 610 501
Noninterest expense . . . . . . 1,243 1,260 1,670 1,624 1,612 1,818 1,809
-------- -------- ------- ------- -------- -------- -------
Pretax income . . . . . . . . . 620 232 423 266 86 (187) (175)
Income tax provision. . . . . . (209) (74) (139) (64) 0 0 0
Cumulative effect of change in
accounting principle . . . . 0 0 0 271 0 0 0
-------- -------- ------- ------- -------- -------- -------
Net income . . . . . . . . . . . $ 411 $ 158 $ 284 $ 573 $ 86 $ (187) $ (145)
======== ======== ======= ======= ======== ======== =======
BALANCE SHEET DATA (AT PERIOD END):
Loans, net of unearned income .$ 24,787 $ 21,710 $22,601 $16,220 $ 14,024 $ 10,993 $13,023
Earning assets . . . . . . . . . 35,327 26,263 27,617 21,188 22,425 22,153 23,489
Assets . . . . . . . . . . . . . 39,538 29,620 31,510 24,895 26,299 26,213 26,741
Deposits . . . . . . . . . . . . 35,039 25,771 24,232 21,912 24,084 24,588 24,887
Shareholders' equity . . . . . . 4,234 2,832 2,944 2,746 2,167 1,463 1,650
Common shares outstanding(1) . . 304 223 225 223 223 150 150
AVERAGE BALANCE SHEET DATA:
Loans, net of unearned income . $ 23,857 $ 18,137 $19,092 $14,963 $ 12,258 $ 11,244 $15,646
Earning assets . . . . . . . . . 34,107 23,655 24,666 21,929 22,189 22,676 26,422
Assets . . . . . . . . . . . . 37,457 24,154 28,173 23,188 25,623 26,020 30,063
Deposits . . . . . . . . . . . . 33,547 24,154 25,131 22,657 23,657 24,315 28,097
Shareholders' equity . . . . . . 3,628 2,764 2,804 2,457 1,736 1,571 1,789
Common shares outstanding(1) . . 323 327 327 310 188 150 130
PER COMMON SHARE DATA:
Income before cumulative effect
of change in accounting
principle . . . . . . . . . . $ 1.27 $ .51 $ .87 $ 1.85 $ .46 $ (1.25) $(1.17)
Cumulative effect of change in
accounting principle . . . . 0 0 0 1.66 0 0 0
-------- -------- ------- ------- -------- -------- -------
Net income (loss) . . . . . . . 1.27 .51 .87 3.51 .46 (1.25) (1.17)
Cash dividends declared . . . . 0 0 0 0 0 0 0
Shareholders' equity (book value)
end of period . . . . . . . . 13.11 8.66 9.00 8.84 11.53 9.75 11.00
PERFORMANCE RATIOS:
Return on average assets(2) . . 1.46% .78% 1.01% 2.27% .34% (.71%) (.65%)
Return on average equity(2) . . 15.10% 7.62% 10.13% 23.32% 4.95% (11.90%) (9.78%)
Net interest margin, taxable
equivalent . . . . . . . . . . 5.58% 6.41% 6.49% 6.25% 5.41% 4.50% 4.91%
Equity to total assets . . . . 10.71% 9.56% 9.34% 11.01% 8.24% 5.58% 6.17%
Dividend payout . . . . . . . . -- -- -- -- -- -- --
CAPITAL RATIOS:*
Tier 1 capital . . . . . . . . . 15.46% 13.63% 13.58% 16.21% 14.84% 12.47% 11.96%
Total capital . . . . . . . . . 16.71% 14.89% 14.84% 17.48% 16.10% 14.00% 13.50%
Leverage . . . . . . . . . . . . 10.71% 9.56% 9.34% 11.01% 8.24% 5.58% 6.17%
====== ====== ====== ====== ====== ====== ======
*CURRENT MINIMUM REGULATORY CAPITAL REQUIREMENTS:
Tier 1 capital ratio . . . . . . . . . 4.00%
Total capital ratio . . . . . . . . . 8.00
Leverage ratio . . . . . . . . . . . . 3.00-5.00
</TABLE>
(1) Common share data is calculated using the outstanding shares of common
stock as of each date plus (i) for 1992, 1993, 1994 and 1995 73,425 shares
for exercisable warrants issued in 1992; and (ii) for 1993, 1994 and 1995,
currently exercisable stock options for 30,000 shares, 27,600 shares and
18,000 shares, respectively.
(2) Annualized for the nine month periods ended September 30, 1995 and 1994.
-13-
<PAGE> 23
COMBINED SELECTED FINANCIAL DATA
(PRO FORMA)
The following table sets forth selected consolidated pro forma
combined financial data and ratios giving effect to the Merger on a
pooling-of-interests accounting basis at September 30, 1995 and 1994, and for
the nine months ended September 30, 1995 and 1994, and the five years in the
period ended December 31, 1994, and should be read in conjunction with the
audited consolidated financial statements of CFB and CBI for the five years
ended December 31, 1994, and the unaudited financial statements of CFB and CBI
for the nine months ended September 30, 1995, and September 30, 1994, included
and incorporated herein. See "AVAILABLE INFORMATION", "THE MERGER--Conduct of
Business Pending the Merger" and "FINANCIAL STATEMENTS."
-14-
<PAGE> 24
COMBINED SELECTED CONSOLIDATED FINANCIAL DATA
(PRO FORMA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
==================== ==================================================
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per share and ratio data)
INCOME STATEMENT DATA:
Interest income . . . . . . . . . $ 27,461 $ 23,267 $ 31,660 $ 29,256 $ 29,728 $ 30,304 $ 29,155
Interest expense . . . . . . . . 13,042 9,354 12,919 12,171 14,177 17,701 17,663
Net interest income . . . . . . $ 14,419 $ 13,913 $ 18,741 $ 17,085 $ 15,551 $ 12,603 $ 11,492
Provision for loan losses . . . . 255 523 600 1,096 1,450 1,005 1,041
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision 14,164 13,390 18,141 15,989 14,101 11,598 10,451
Noninterest income . . . . . . . 2,126 1,775 2,497 3,113 3,633 2,868 1,954
Noninterest expense . . . . . . . 9,203 8,924 12,127 11,521 10,938 10,072 8,675
-------- -------- -------- -------- -------- -------- --------
Pretax income . . . . . . . . . . 7,087 6,241 8,511 7,581 6,796 4,394 3,730
Income tax provision . . . . . . (1,908) (1,621) (2,222) (1,906) (1,777) (1,078) (888)
Cumulative effect of change in
accounting principle . . . . . 0 0 0 626 0 0 0
-------- -------- -------- ------- -------- -------- --------
Net income . . . . . . . . . . . $ 5,179 $ 4,620 $ 6,289 $ 6,301 $ 5,019 $ 3,316 $ 2,842
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Loans, net of unearned income . . $245,749 $212,789 $218,559 $192,330 $172,728 $155,546 $134,181
Earning assets . . . . . . . . . 470,180 423,782 430,122 404,923 377,208 345,091 302,056
Assets . . . . . . . . . . . . . 499,429 452,044 464,338 430,803 403,546 372,292 327,971
Deposits . . . . . . . . . . . . 439,261 406,540 416,099 386,187 366,948 334,171 296,859
Shareholders' equity . . . . . . 47,334 39,299 36,920 39,534 30,951 26,449 23,687
Common shares outstanding(1) . . 4,477 4,473 4,473 4,475 4,478 4,497 4,534
AVERAGE BALANCE SHEET DATA:
Loans, net of unearned income . . $232,915 $207,304 $206,060 $170,577 $166,605 $147,362 $137,409
Earning assets . . . . . . . . . 462,331 426,878 425,011 390,776 364,592 328,522 308,408
Assets . . . . . . . . . . . . . 486,590 443,821 450,638 415,784 389,130 348,458 329,512
Deposits . . . . . . . . . . . . 431,786 410,966 408,553 379,750 357,404 320,246 297,202
Shareholders' equity . . . . . . 43,743 39,395 37,959 33,382 28,553 24,653 22,823
Common shares outstanding(1) . . 4,477 4,473 4,473 4,475 4,478 4,497 4,534
PER COMMON SHARE DATA(1):
Income before cumulative effect
of change in accounting principle 1.16 1.03 1.41 1.27 1.12 .74 .63
Cumulative effect of change in
accounting principle . . . . . 0 0 0 0.14 0 0 0
-------- -------- -------- -------- -------- -------- --------
Net income . . . . . . . . . . . 1.16 1.03 1.41 1.41 1.12 .74 .63
Cash dividends declared . . . . . 0 0 .35 .31 .28 .19 .16
Shareholders' equity (book value)
end of period . . . . . . . . $ 10.57 $ 8.79 $ 8.25 8.83 $ 6.91 $ 5.88 $ 5.22
PERFORMANCE RATIOS:
Return on average assets(2) . . . 1.42% 1.39% 1.86% 2.02% 1.72% 1.27% 1.15%
Return on average equity(2) . . . 15.79% 15.66% 16.57% 18.88% 17.58% 13.45% 12.45%
Net interest margin, taxable 4.42% 4.67% 4.74% 4.67% 4.56% 4.13% 4.16%
equivalent . . . . . . . . . . . . .
Equity to total assets . . . . . 9.48% 8.69% 7.95% 9.07% 7.67% 7.10% 7.22%
Dividend payout . . . . . . . . . -- -- 24.83% 21.99% 25.00% 25.68% 25.40%
CAPITAL RATIOS:
Tier 1 capital . . . . . . . . . 16.95% 15.48% 15.97% 15.32% 14.45% 13.51% N/A
Total capital . . . . . . . . . . 18.07% 16.67% 17.22% 16.55% 15.38% 14.49% N/A
Leverage . . . . . . . . . . . . 9.48% 8.69% 7.95% 9.18% 7.67% 7.10% 7.22%
</TABLE>
_______________________
(1) Common Share Data is calculated using 4,047,643 shares currently
outstanding for CBI plus (i) 67,275 shares issuable pursuant to currently
exercisable stock options and (ii) the additional 425,000 shares to be
issued in conjunction with the Merger.
(2) Returns on assets and equity for the nine month periods are annualized.
(3) During 1995 and 1994, CFB paid no dividends, and CBI declared and paid
dividends only annually. See "Summary--Market Prices and Dividends"
-15-
<PAGE> 25
RISK FACTORS
In addition to the other information in this Proxy
Statement/Prospectus, the following risk factors should be considered carefully
in evaluating the Merger.
INTEGRATION OF OPERATIONS
The success of the Merger will be determined by various factors,
including management's ability to successfully integrate the operations of CBI
and CFB and the financial performance of the companies' operations after the
Merger. Factors which will affect management's ability to successfully
integrate the combined operations of CBI and CFB include, without limitation,
implementing management and other systems, marketing an expanded line of
products and services throughout the organization and taking advantage of cost
saving opportunities, especially integration of data processing and other
administrative functions. Although expense reduction was not a primary reason
for the Merger, CBI and CFB presently anticipate that expenses associated with
the transaction will total approximately $250,000 to $300,000 and that the
Merger will result in cost savings in future years of approximately $325,000
annually due in large part to anticipated savings from moving CFB's data
processing from a third-party vendor to CBI's existing data processing systems,
more efficient combined marketing efforts and personnel organization, and
improved asset/liability management, centralized internal audit, compliance and
accounting functions, and combined financial and regulatory reporting systems.
As with all estimates of the types indicated above, there are many
factors, such as changes in economic or competitive conditions, changes in
legislation or regulation or the failure of any of the underlying assumptions
to be correct, that are beyond CBI's and CFB's control. Because of these
substantial uncertainties, differences between these estimates and actual
results are likely.
GENERAL INFORMATION
SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished by CFB to its
shareholders in connection with the solicitation of proxies by the CFB Board
from holders of CFB Common Stock for use at the Special Meeting to be held at
4:00 p.m., Eastern Time, on Thursday, April 11, 1996, at the main office of CFB,
1601 S.W. College Road, Ocala, Florida to consider and vote upon a proposal to
approve the Merger Agreement and consummation of the transactions contemplated
therein and to transact such other business as may properly come before the
Special Meeting.
This document is also being furnished by CBI to CFB shareholders as a
prospectus in connection with the shares of CBI Common Stock issuable upon
consummation of the Merger.
The Merger Agreement provides that CFB will merge with and into CBI.
At the Effective Time, each share of issued and outstanding CFB Common Stock
(excluding shares held directly or indirectly by CFB or CBI, in each case other
than in a fiduciary capacity or as a result of debts previously contracted, and
excluding shares held by CFB shareholders who perfect their dissenters' rights)
shall cease to be outstanding and shall be converted into and exchanged solely
for the right to receive that number of shares of CBI Common Stock equal to
425,000 divided by the number of shares of CFB Common Stock issued and
outstanding on the effective date of the Merger. Based upon the number of
shares of CFB Common Stock expected to be issued and converted into CBI Common
Stock at the Effective Time, each share of CFB Common Stock is expected to be
exchanged for 1.318 shares of CBI Common Stock. See "THE MERGER--Exchange
Ratio."
If the Merger Agreement is approved at the Special Meeting, all
required governmental and other consents and approvals are obtained, and all of
the other conditions to the obligations of the parties to consummate the Merger
are either satisfied or waived (as permitted), the Merger will be consummated.
See "THE MERGER--Effective Time."
-16-
<PAGE> 26
RECORD DATE, SOLICITATION, AND REVOCABILITY OF PROXIES
The CFB Board has fixed the close of business on March 7, 1996, as the
Record Date for determining the CFB shareholders entitled to receive notice of
and to vote at the Special Meeting. Only holders of record of CFB Common Stock
as of the Record Date are entitled to notice of and to vote at the Special
Meeting. As of the Record Date, 304,480 shares of CFB Common Stock were issued
and outstanding and held by approximately 434 holders of record. Holders of
CFB Common Stock are entitled to one vote for each share of CFB Common Stock
held of record as of the Record Date. The presence, in person or by properly
executed proxy, of the holders of a majority of the outstanding shares of CFB
Common Stock entitled to vote at the Special Meeting is necessary to constitute
a quorum at the Special Meeting. In determining whether a quorum exists at the
Special Meeting for purposes of all matters to be voted on, all votes "for" or
"against," as well as all abstentions, will be counted. The vote required for
the approval of the Merger is a majority (152,241 shares) of the outstanding
shares of CFB Common Stock entitled to vote on the Merger. Consequently, with
respect to the proposal to approve the Merger, abstentions and broker non-votes
will be counted as part of the base number of votes to be used in determining
if the proposal has received the requisite number of base votes for approval.
Thus, abstentions and broker non-votes will have the same effect as a vote
"against" such proposal. See "--Vote Required."
Proxies in the form enclosed are solicited by CFB's Board. Shares of
CFB Common Stock represented by properly executed proxies, if such proxies are
received in time and are not revoked, will be voted in accordance with the
instructions indicated on the proxies. If no instructions are indicated, such
proxies will be voted FOR approval of the Merger Agreement and consummation of
the transactions contemplated therein, and as determined by a majority of the
members of the CFB Board as to any other matter that may properly come before
the Special Meeting. Any holder of CFB Common Stock who returns a signed proxy,
but fails to provide instructions as to the manner in which such holder's
shares are to be voted will be deemed to have voted in favor of approval of the
Merger Agreement and consummation of the transactions contemplated therein, and
will not be entitled to assert dissenters' rights. See "THE MERGER--Dissenters'
Rights."
A CFB shareholder who has given a proxy may revoke it at any time
prior to its exercise at the Special Meeting, by (i) giving written notice of
revocation to the Secretary of CFB, (ii) properly submitting to CFB a duly
executed proxy bearing a later date or (iii) voting in person at the Special
Meeting. All written notices of revocation and other communications with
respect to revocation of proxies should be addressed to CFB as follows:
Citizens First Bancshares, Inc., 1601 S.W. College Road, Ocala, Florida 34478,
Attention: Corporate Secretary.
The expense of soliciting proxies for the Special Meeting will be paid
for by CFB, although CBI and CFB have agreed to each pay one-half of the cost
of preparing and mailing this Proxy Statement/Prospectus. In addition to the
solicitation of shareholders of record by mail, telephone or personal contact,
CFB will be contacting brokers, dealers, banks or voting trustees or their
nominees who can be identified as record holders of CFB Common Stock; such
holders, after inquiry by CFB, will provide information concerning quantity of
proxy and other materials needed to supply such materials to beneficial owners,
and CFB will reimburse them for the expense of mailing the proxy materials to
such persons.
VOTE REQUIRED
Approval of the Merger Agreement and consummation of the transactions
contemplated therein requires the affirmative vote of the holders of a majority
(152,241 shares) of the outstanding shares of CFB Common Stock entitled to vote
thereon at the Special Meeting. The Merger Agreement and the consummation of
the transactions contemplated therein do not require the approval of the
holders of CBI Common Stock.
As of the Record Date, CFB directors and executive officers, and their
affiliates, held approximately 176,951 shares or 58.12% of the outstanding
shares of CFB Common Stock entitled to vote at the Special Meeting. Such
persons have agreed to vote their shares of CFB Common Stock in favor of the
Merger. In addition, two additional shareholders who hold and aggregate of
42,872 shares of CFB Common Stock (14.08%) have
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agreed to vote their shares in favor of the Merger. As of the Record Date, CBI
and its directors and executive officers held no shares of CFB Common Stock.
RECOMMENDATION OF CFB'S BOARD OF DIRECTORS
CFB's Board unanimously approved and adopted the Merger Agreement, and
believes that the Merger is in the best interests of CFB and its shareholders,
and unanimously recommends that CFB shareholders vote FOR approval of the
Merger Agreement and the consummation of the transactions contemplated therein.
See "THE MERGER--Reasons for the Merger, CFB."
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THE MERGER
The following information describes certain information pertaining to
the Merger. This description does not purport to be complete and is qualified
in its entirety by reference to the Appendices hereto, including the Merger
Agreement, a copy of which is set forth in ANNEX A to this Proxy
Statement/Prospectus and is incorporated herein by reference. All shareholders
are urged to read the Annexes hereto in their entirety.
GENERAL
The Merger Agreement provides that CFB shall merge with and into CBI,
with CBI as the continuing bank holding company. At the Effective Time of the
Merger, each share of issued and outstanding CFB Common Stock (excluding shares
held directly or indirectly by CFB or CBI, in each case other than in a
fiduciary capacity or as a result of debts previously contracted, and excluding
shares held by CFB shareholders who perfect their dissenters' rights) shall
cease to be outstanding and shall be converted into and exchanged solely for
the right to receive that number of shares of CBI Common Stock equal to 425,000
divided by the number of shares of CFB Common Stock issued and outstanding on
the effective date of the Merger. If the Merger Agreement is approved at the
Special Meeting, all required governmental and other consents and approvals are
obtained, and all other conditions of the obligations of the parties to
consummate the Merger are either satisfied or waived (to the extent permitted
by law), the Merger will be consummated. It is contemplated that
simultaneously with the Merger, CFBO will be merged (the "Bank Merger") with
and into CNBL. A copy of the Merger Agreement is set forth in ANNEX A of this
Proxy Statement/Prospectus. See "Exchange Ratio."
BACKGROUND OF THE MERGER
CBI's strategic plan provides for the expansion of the range of
financial services offered and geographic expansion, including acquisitions,
both inside Lake County, Florida and in other complementary markets. CBI's
Board believes that such expansion will enable CBI to diversify risk, enhance
income, better serve customer needs through a broader range of products and
services and increase the long-term value of CBI's Common Stock. While CBI's
Board has discussed acquisitions during the past two years as part of CBI's
long-term strategic plan, the Merger is CBI's first acquisition. CBI has
previously relied on internal growth. In the second quarter of 1994, CBI
management identified CFB as an attractive merger partner that would provide a
good entry into the Ocala, Marion County, Florida market and which would
benefit from CBI's broader range of products and services.
In April 1992, CFB offered up to $2,500,000 of units consisting of one
share of common stock of CFB and one warrant to purchase one share of common
stock at $10 per unit. CFB's long-term goal was to enhance the value of CFB
Common Stock for the benefit of its shareholders, to provide liquidity for
shareholders by developing a potentially broader market for CFB Common Stock,
and to provide capital to expand CFB's products and services to the community.
No shares of CFB Common Stock were traded in 1992, and only 4,215 and 6,406
shares were traded in 1993 and 1994, respectively. To further its goal of
seeking to develop a broader market and greater liquidity for CFB's
shareholders, CFB considered developing a dialogue regarding a combination with
other independent banks with similar interests.
During the first quarter of 1994, CFB held preliminary discussions
with several independent central Florida banks regarding the possible formation
of a multi-bank holding company in a merger of equals. While these discussions
continued, CFB also considered a CBI proposal and a competing proposal from an
out-of-state regional bank holding company. On September 14, 1995, it was
concluded that no agreement on the formation of the multi-bank holding company
was possible due in large part to the inability of the proposed constituent
bank holding companies to reach a basic understanding on structure and pricing
issues. Between the first quarter of 1994 until the acceptance of CBI's offer,
other discussions were held between CFB and a large regional community bank,
several independent community banks, and a number of regional banks. However,
until an out-of-state regional bank made an offer on August 22, 1995, followed
by CBI's offer on September 14, 1995, CFB had not received an offer for the CFB
Board to evaluate. In light of these continuing discussions and the several
mergers that had been announced in the banking industry, CFB retained a
consultant, Financial Institutions Advisory Services, Inc. ("Advisory
Services"), who (i) during the first quarter, estimated CFB's value based upon
book
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value and earnings and (ii) in September, 1995, estimated CFB's acquisition
value, based upon these factors, to be between $8.2 million to $8.7 million.
Advisory Services' September 1 valuation did not consider any specific offers
for CFB, nor did Advisory Services assist CFB in its negotiations to sell CFB.
Advisory Services did not provide any fairness or similar opinions to CFB. The
CFB Board considered these reports in evaluating the proposals from CBI and the
regional bank. The CFB Board determined not to pursue a combination with the
regional bank due to among other factors, pricing issues and the desire to
combine with a community-oriented bank located in the same general geographic
area. The regional bank had no other offices in the central Florida areas
served by CFB and CBI and as of the date that the CFB Board considered the two
offers, the estimated market value of the two offers were not materially
different.
In July 1994, CBI's Board first discussed a possible combination of
CBI and CFB and authorized Kenneth W. Mullis, President of CBI, to initiate
discussions with CFB. In October 1994, Mr. Mullis notified Mr. Sides, CFB's
President, that CBI was interested in discussing a combination with CFB at such
time that CFB desired such a discussion. In response to expressions of
interest by CBI, Terry E. Trexler, Chairman of the CFB Board, contacted Kenneth
Mullis, CBI's President, to arrange a meeting. When Messrs. Trexler and Mullis
met on July 27, 1995, Mr. Mullis explained CBI's desire to enter into a
business combination with CFB, with an emphasis on broadening the services that
the combined entity could offer to the CFBO customers, while at the same time
lowering costs and preserving the community bank culture and customer service.
These discussions resulted in the CBI stock-for-stock merger proposal of
September 14, 1995, which was approved unanimously by the CFB Board. The
pricing terms were negotiated on an arms-length basis between the executive
officers of CBI and CFB, primarily Terry Trexler and Kenneth Mullis. In the 60
days preceding CBI's offer, Mr. Trexler and other officers and directors of CFB
and Mr. Mullis of CBI met and talked on a number of occasions and discussed the
possibility of a combination with their respective Boards of Directors, and in
CBI's case, its Strategic Planning Committee. CFB's Board of Directors and its
Executive Committee met four times between August 17 and September 14, 1995, to
discuss possible combinations and updating information on the progress of
discussions with CBI and a regional bank. Throughout this period it was deemed
extremely important by CFB that any potential merger partner continue to
operate CFBO in a manner consistent with CFB's local community service goals.
On September 14, 1995, the CBI Strategic Planning Committee met and
unanimously recommended to the full CBI Board that it approve the Merger. The
CBI Board then met on October 19, 1995, with management, representatives of
Purvis, Gray and Company ("Purvis Gray"), CBI's independent auditors,
representatives of Alston & Bird, Atlanta, Georgia, CBI's special legal
counsel, and The Carson Medlin Company ("Carson Medlin") to review the results
of management's due diligence investigation of CFB, the terms of the Merger,
including the proposed definitive Merger Agreement and related documents, and
the financial and operational impact of the Merger. Carson Medlin provided
financial advisory services to CBI relating to financial impact of the Merger
but did not provide any fairness or similar opinions to CFB. Carson Medlin
considered various factors such as a contribution analysis and a dilution
analysis, in assisting CBI in its evaluation of CFB and the feasibility of a
combination with CFB. The CBI Board voted to approve and authorize the
execution of the Merger Agreement in substantially the form presented at the
October 19, 1995, Board meeting, by unanimous vote of those directors present.
Between September 14, 1995, and October 19, 1995, CFB and CBI
completed diligence and drafts of the definitive agreements and on October 19,
1995, the full CFB Board met with representatives of Hicks & MacQuarrie, CFB's
legal counsel. Counsel reviewed with the CFB Board terms of the proposed
Merger Agreement and the CFB Board reviewed the financial and other terms of
Merger. The CFB Board then voted unanimously to approve and authorize the
execution of the Merger Agreement, in substantially the form presented at the
October 19, 1995, meeting.
Following the Board meetings on October 19, 1995, the final terms of
the Merger Agreement were fully negotiated, and the Merger Agreement was
executed by both parties on November 1, 1995.
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REASONS FOR THE MERGER
CFB
In reaching its determination that the Merger and Merger Agreement are
fair, and in the best interests of, CFB and its shareholders, the CFB Board
consulted Hicks & MacQuarrie, with its legal advisors, as well as with CFB
management, compared the proposed terms of the Merger to the prior financial
evaluations and considered a number of factors, including, without limitation,
the following:
(i) To provide liquidity for shareholders. CFB Common Stock is not
traded or listed and there is a limited market for the CFB Common Stock, while
CBI Common Stock is listed on the Nasdaq National Market and several market
makers regularly trade CBI Common Stock.
(ii) To provide long-term shareholder value by merging with a larger
organization, while maintaining the marketing and customer service advantages
of a local, community banking organization.
(iii) To enhance CFB's range of products and services to its
community and enhance customer convenience through a larger number of locations
in Lake, Sumter and Marion Counties. By merging with CBI, CFB will be able to
provide additional products, particularly loan products, including a
substantially larger lending limit, and services such as trust and fiduciary
services, credit cards, automatic teller machines ("ATMs"), debit cards,
residential mortgages and indirect lending, and cash management.
(iv) To reduce data processing costs associated with CFB's use of a
third-party vendor, and to otherwise create economies not realizable by CFB
alone. Such anticipated economies include, but are not necessarily limited to
(i) the use of common devices for CFBO's and CNBL's data processing needs which
is anticipated to reduce the per item cost of item processing, (ii) an
anticipated reduction in the per item cost of banking product application
processing (i.e. demand deposits, savings, certificates of deposit and loans),
(iii) the anticipated volume discounts in connection with the purchases of
goods or services, including group health insurance provided by CFBO and CNBL
for employees and (iv) the consolidation of CFBO's and CNBL's regulatory and
examination functions.
The foregoing discussion of the information and factors considered by
the CFB Board is not intended to be exhaustive, but is believed to include all
material factors considered by the CFB Board. In reaching its determination to
approve the Merger, the CFB Board did not assign any relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to different factors. After deliberating with respect to the
Merger and the other transactions contemplated by the Merger Agreement, and
considering, among other things, the matters discussed above, the CFB Board
unanimously approved the Merger Agreement and the transactions contemplated
thereby as being in the best interests of CFB and its shareholders.
THE CFB BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF
THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY.
CBI
In reaching its conclusion to approve the Merger, the CBI Board
consulted with CBI's senior management, as well as its financial and legal
advisors, and considered various factors, including the following:
(i) The effectiveness of the Merger as a method of implementing
CBI's strategy for long-term growth and enhanced shareholder value. This
included (a) potential increases in annual revenues estimated at approximately
$300,000 to $500,000 within the next five years from the sale of CBI products
and services (trust, credit cards, cash management, mortgages, indirect
consumer lending, debit cards and automated teller machines) to CFB customers,
(b) the strong CFB banking franchise with a retail and middle market focus in
markets that are complementary to CBI's existing banking franchise, that have
experienced significant growth in recent years, and that give CBI an strong
presence in the Ocala, Florida area, (c) an organization with a similar
philosophy and approach to customer service, credit quality and community
banking, (d) an organization that in many respects is similar to CBI in banking
philosophy, strong capitalization and potential for future growth, that could
be enhanced through the Merger, and (e) opportunities to leverage certain
technology over a larger customer base and to realize other expense savings
(including savings in such areas as data processing, loan review, audit,
investment compliance, reporting, planning, asset/liability management and
budgeting), presently estimated at approximately
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$325,000 annually. As with all estimates of the types indicated in (a) and (e)
above, there are many factors, such as changes in economic or competitive
conditions, differences between the markets in which CBI and CFB operate,
changes in legislation, or regulation or the failure of any of the underlying
assumptions to be correct, that are beyond CBI's and CFB's control. Because of
these substantial uncertainties, differences between these estimates and actual
results are likely.
(ii) Certain financial information about the Merger, CBI and CFB.
This information included, but was not limited to, information with regard to
respective recent and historic stock trading, ranging of the two institutions
and the total number of shareholders following the transaction, valuation
analyses, pro forma analyses, comparative financial data, and comparable merger
and acquisition transactions as presented by CBI's financial advisor, Carson
Medlin, independent accountants and senior management. CBI senior management
also commented on its due diligence review. See "PRO FORMA CONDENSED COMBINED
FINANCIAL DATA"
(iii) The likelihood that the Merger would be approved by the
appropriate regulatory authorities (see "--Regulatory Approvals").
The foregoing discussion of the information and factors considered by
the CBI Board is not intended to be exhaustive but is believed to include all
material factors considered by the CBI Board. In reaching its determination to
approve the Merger, the CBI Board did not assign any relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to different factors. After deliberating with respect to the
Merger and the other transactions contemplated by the Merger Agreement, and
considering, among other things, the matters discussed above, the CBI Board
unanimously approved the Merger Agreement and the transactions contemplated
thereby as being in the best interests of CBI and its shareholders.
EXCHANGE RATIO
The Merger Agreement provides that, at the Effective Time, each issued
and outstanding share of CFB Common Stock (excluding shares held directly or
indirectly by CFB or CBI, in each case other than in a fiduciary capacity or as
a result of debts previously contracted, and excluding shares held by
shareholders who perfect their dissenters' rights) shall cease to be
outstanding and shall be converted into and exchanged solely for the right to
receive that number of shares of CBI Common Stock equal to 425,000 divided by
the number of shares of CFB Common Stock issued and outstanding at the
Effective Time of the Merger. The Merger Agreement specifies that all options
to purchase 18,000 shares of CFB Common Stock be exercised prior to the
Effective Time. CFB has indicated that all options on CFB Common Stock will be
exercised and, therefore, assuming 322,480 shares of CFB Common Stock will be
outstanding at the Effective Time, CFB shareholders will be entitled to the
Exchange Ratio of 1.318 shares of CBI Common Stock per share of CFB Common
Stock held.
Pursuant to the terms of the Merger Agreement, each holder of shares
of CFB Common Stock exchanged pursuant to the Merger, who would otherwise have
been entitled to receive a fraction of a share of CBI Common Stock shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of CBI Common Stock multiplied by the market value
of one share of CBI Common Stock at the Effective Time. The market value of
one share of CBI Common Stock at the Effective Time shall be the last sale
price of such common stock on the Nasdaq National Market (as reported by The
Wall Street Journal or, if not reported thereby, any other authoritative
source) on the last trading day preceding the Effective Time. No such holder
will be entitled to dividends, voting rights, or any other rights as a
shareholder in respect of any fractional shares.
In the event CFB or CBI changes the number of shares of CFB Common
Stock or CBI Common Stock, or other common stock equivalents, on a fully
diluted basis, issued and outstanding prior to the Effective Time as a result
of a stock split, stock dividend or similar recapitalization with respect to
such stock and the record date therefore shall be prior to the Effective Time,
the Exchange Ratio shall be proportionately adjusted.
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EFFECTIVE TIME
If the Merger Agreement is approved by the requisite vote of CFB
shareholders, and all other required governmental and other consents and
approvals are received, and if the other conditions to the obligations of the
parties to consummate the Merger are satisfied, or, to the extent permissible,
waived, the Merger will be consummated and effected on the date and at the time
Articles of Merger, reflecting the Merger, are filed with the Secretary of
State of the State of Florida (the "Effective Time"). Unless otherwise mutually
agreed upon in writing by the chief executive officers or chief financial
officers of each of CBI and CFB, CBI and CFB have agreed to use their
reasonable efforts to cause the Effective Time to occur on the last business
day of the month in which occurs the last to occur of (i) the effective date
(including expiration of any applicable waiting period) of the last required
consent of any regulatory authority having authority over and approving or
exempting the Merger and (ii) the date on which the shareholders of CFB approve
the Merger Agreement to the extent such approval is required by applicable law;
or such later date within 30 days thereof as may be specified by CBI. Assuming
satisfaction of all conditions to consummation of the Merger, the Merger is
expected to be made effective during April, 1996. Either CBI or CFB may
terminate the Merger Agreement if the Merger has not been consummated by April
30, 1996, unless extended. See "--Conditions to Consummation" and "--Amendment,
Waiver and Termination."
DISTRIBUTION OF CBI CERTIFICATES
Promptly after the Effective Time, the exchange agent selected by CBI
shall mail appropriate transmittal materials to each record holder of CFB
Common Stock for use in effecting the surrender and cancellation of
certificates formerly representing shares of CFB Common Stock in exchange for
certificates for CBI Common Stock (which shall contain an affidavit and surety
bond for any lost or stolen stock certificates and which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
theretofore representing shares of CFB Common Stock shall pass, only upon
proper delivery of such certificates to CBI by the former shareholders of CFB).
CFB SHAREHOLDERS SHOULD NOT SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL
THEY RECEIVE SUCH LETTER OF TRANSMITTAL AND INSTRUCTIONS. After the Effective
Time, each holder of shares of CFB Common Stock issued and outstanding at the
Effective Time (other than shares as to which dissenters' rights have been
perfected) shall surrender the certificate or certificates representing such
shares to CBI, and the certificates thus surrendered will be canceled. Unless
otherwise designated by a CFB shareholder on the transmittal letter,
certificates representing shares of CBI Common Stock issued to CFB shareholders
in connection with the Merger will be issued and delivered to the tendering CFB
shareholder at the address on record with the CFB Common Stock transfer agent.
CBI shall not be obligated to deliver the consideration to which any former
holder of CFB Common Stock is entitled until such holder properly surrenders
his certificate or certificates formerly representing CFB Common Stock for
exchange. The certificate or certificates so surrendered shall be duly endorsed
as CBI may require. No party shall be liable to a holder of CFB Common Stock
for any property delivered in good faith to a public official pursuant to any
applicable abandoned property law.
After the Effective Time, holders of CFB certificates will have no
rights with respect to the shares of CFB Common Stock formerly represented
thereby other than the right to surrender such certificates and receive in
exchange therefor the shares of CBI Common Stock, if any, to which such holders
are entitled, as described above, or the right to perfect their dissenters'
rights. In addition, no dividend or other distribution payable to holders of
record of CBI Common Stock will be paid to the holder of any CFB certificates
until such holder properly surrenders such certificates for exchange as
instructed. Subject to applicable law, upon surrender of the CFB certificates,
such holder will receive the certificates representing the shares of CBI Common
Stock issuable upon the exchange or conversion of such shares of CFB Common
Stock, all withheld dividends or other distributions (without interest), and
any withheld fractional share cash payments (without interest) to which such
shareholder is entitled pursuant to the Merger Agreement.
If any certificate for CBI Common Stock is to be issued in a name
other than that in which the CFB certificate surrendered for exchange is
issued, the CFB certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer, and the person requesting such exchange
shall affix any requisite stock transfer tax
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stamps to the certificates surrendered, shall provide funds for their purchase,
or shall establish to the exchange agent's satisfaction that such taxes are not
payable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of all material federal income tax
consequences of the Merger. This discussion is based on the provisions of the
Code, the United States Department of the Treasury Regulations thereunder and
rulings and court decisions as of the date of this Proxy Statement/Prospectus,
all of which are subject to change, possibly with retroactive effect by
legislation, administrative action, or judicial decision. This discussion is
general in nature, and is not a complete description of all federal income tax
consequences, and does not consider the particular facts or circumstances of
any CFB shareholder (for example, as foreign persons, tax-exempt entities,
dealers in securities, insurance companies, and corporations, among others). In
addition, no information is provided with respect to the tax consequences of
the Merger under any applicable foreign, state or local laws. BECAUSE CERTAIN
TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH CFB SHAREHOLDER, EACH HOLDER OF CFB COMMON STOCK IS URGED
TO CONSULT SUCH HOLDER'S OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO SUCH HOLDER OF THE MERGER (INCLUDING THE APPLICATION AND EFFECT
OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS).
The Merger is intended to constitute a "reorganization" within the
meaning of section 368(a) of the Code, with CFB and CBI each intended to
qualify as a "party to the reorganization" under section 368(b) of the Code, in
which case the following tax consequences will generally result (subject to the
limitations and qualifications referred to herein):
(i) No gain or loss will be recognized for federal income tax
purposes by CFB shareholders upon the exchange of their shares
of CFB Common Stock solely for shares of CBI Common Stock.
(ii) The basis of the shares of CBI Common Stock to be received by
CFB shareholders will be the same as the basis of the shares
of CFB Common Stock surrendered in exchange therefor.
(iii) The holding period of the shares of CBI Common Stock to be
received by CFB shareholders will include the period during
which the shares of CFB Common Stock surrendered in exchange
therefor had been held, provided such shares were held by CFB
shareholders as a capital asset at the Effective Time.
(iv) Dissenting CFB shareholders who receive solely cash in
exchange for their stock will be treated as having received
such payments as distributions in redemption of their shares
of such stock subject to certain limitations. After such
distribution, if a former CFB shareholder neither owns CBI
capital stock nor is deemed to own CBI capital stock under
constructive ownership rules, the redemption will be a
complete termination of interest and will be treated as a
distribution in full payment in exchange for shares of CFB
Common Stock. Accordingly, such shareholder will recognize
gain or loss measured by the difference between the amount of
cash received and such shareholder's adjusted basis in stock
surrendered. CFB shareholders electing to exercise dissenters'
rights should consult their own tax advisors as to the tax
treatment in their particular circumstances.
(v) The payment of cash in lieu of fractional shares of CBI Common
Stock will be treated as if the fractional shares were issued
as part of the exchange and then redeemed by CBI. These cash
payments will be treated as having been received as
distributions in full payment in exchange for the fractional
shares of CBI Common Stock redeemed as provided in Section
302(a) of the Code. Generally, any gain or loss recognized
upon such exchange will be capital gain or loss, provided the
fractional share would constitute a capital asset in the hands
of the exchanging CFB shareholder.
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CBI and CFB have not requested and will not request, a ruling from the
Internal Revenue Service (the "Service") on any tax matter related to the
Merger. However, on March 13, 1996, Alston & Bird, special tax counsel to CBI,
rendered an opinion to CBI and CFB concerning certain federal income tax
consequences of the proposed Merger. This opinion has been filed as an Exhibit
to the Registration Statement and the discussion contained in this subsection
is a summary of such opinion. It is such firm's opinion that, based on the
assumption the Merger is consummated in accordance with Florida law and in
conformity with the representations made by the management of CBI and CFB and
CFB's principal shareholders, the transaction will constitute a
"reorganization" within the meaning of section 368(a) of the Code ("Tax
Opinion"). The Tax Opinion does not address any state, local, or other tax
consequences of the Merger. Unlike a ruling from the Service, the Tax Opinion
is not binding on the Service, and the Service could take a position contrary
to the Tax Opinion. In addition, the Tax Opinion will be subject to certain
assumptions and qualifications and will be based on the truth and accuracy of
certain representations made by the management of CFB and CBI and CFB's
principal shareholders, as to, among other things, the fact that there is no
plan or intention by any of the shareholders of CFB who own one percent (1%) or
more of the outstanding CFB Common Stock, and to the best of the knowledge of
the management of CFB, the remaining CFB shareholders have no plan or
intention, to sell, exchange, or otherwise dispose of a number of shares of CBI
Common Stock that they will receive in the Merger that will reduce on the part
of the CFB shareholders such shareholders' ownership of CBI Common Stock to a
number of shares having an aggregate value as of the date of the Merger of less
than fifty percent (50%) of the aggregate value of all of the stock of CFB
outstanding immediately prior to the Merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
CBI will be the surviving corporation resulting from the Merger.
Following consummation of the Merger, CFBO will be merged into and with CNBL,
leaving CNBL as the sole banking subsidiary of CBI. The officers of CBI in
office immediately prior to the Effective Time shall continue to serve as
officers of CBI after the Effective Time. Following consummation of the Merger,
Terry Trexler, Chairman and a director of CFB and CFBO, will be elected to
serve on the CBI and CNBL Board of Directors. See "--Interests of Certain
Persons in the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of November 30, 1995, the directors and executive officers of CFB
beneficially owned no shares of CBI Common Stock. While CBI directors
currently do not receive compensation for attendance of meetings of the CBI
Board of Directors actually attended, directors who are not employees of CBI
receive an annual retainer of $5,000. CNBL directors who are not employees of
CNBL currently receive $300 in cash for every meeting of the CNBL Board of
Directors actually attended, $100 for every committee meeting actually attended
and an annual retainer of $10,000. CBI evaluates its compensation practices
generally on an annual basis, and its compensation to directors may change. In
addition, Mr. C. Daniel Hicks, a current director of CFB, is a partner in the
law firm of Hicks & MacQuarrie. Mr. Hicks has served as legal counsel to CFB
in connection with the Merger and in other matters. Other than as described
herein, no director or executive officer of CBI or CFB, and no associate of any
such person, has any substantial interest, direct or indirect, in the Merger,
other than an interest arising from the ownership of CFB Common Stock, in which
case the director or officer receives no extra or special benefit not shared on
a pro rata basis by all other holders of CFB Common Stock. In each case, the
Board of Directors of CFB either was aware of these factors or, with respect to
interests that arose subsequent to the Merger Agreement, was aware of their
potential, and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
Director and Officer Insurance. The Merger Agreement provides that
CFBO, at its option, may seek to maintain CFB's existing directors' and
officers' liability insurance policy for a period of two years after the
Effective Time of the Merger, subject to certain cost limitations.
Post Acquisition Compensation and Benefits. The Merger Agreement
provides that, after the Effective Time, CBI will provide generally to officers
and employees of CFB and its subsidiaries, employee benefits under
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<PAGE> 35
employee benefit plans (other than stock options or other plans involving the
potential issuance of CBI Common Stock or cash bonuses), on terms and
conditions that, when taken as a whole, are substantially similar to those
currently provided by CBI and its subsidiaries to their similarly situated
officers and employees. For purposes of participation and vesting (but not
benefit accrual) under such employee benefit plans, service with CFB or its
subsidiaries prior to the Effective Time will be treated as service with CBI or
its subsidiaries.
CBI and CFB offer a similar range of employee benefits, although
co-payments, deductibles, vesting periods and other terms do vary. The
following summarizes the material employee benefits of the merging parties.
Both CBI and CFB maintain group health insurance and CBI offers dental coverage.
CFB has a Code Section 125 Cafeteria Plan. CFB and CBI each offer group term
life insurance. Both organizations have short-term sick leave and long-term
disability as well as vacation policies. CFB currently matches 10% of the
first 6% of the base salary contributed to the CFB 401(k) Plan. CFB's
contribution has ranged from .27% to .31% of total compensation. Both CFB and
CBI have stock option plans for key employees. Both companies provide various
forms of incentive cash compensation to their employees. CBI currently provides
a defined benefit pension plan and a deferred profit sharing plan to CBI
employees. CBI reviews its compensation systems on an annual basis, and its
current plans and programs are subject to change.
CBI Board Memberships. It is anticipated that following consummation
of the Merger, Mr. Terry E. Trexler, a current CFB director, will be elected to
serve on the CBI and CNBL Board.
CONDITIONS TO CONSUMMATION
The obligations of CFB and CBI to consummate the Merger are subject to
the satisfaction or waiver (to the extent permitted) of the following
conditions: (i) the Merger Agreement shall have been approved by the
shareholders of CFB; (ii) the required regulatory approvals described under
"--REGULATORY APPROVALS" shall have been received, and no such regulatory
approval which is necessary to consummate the transactions contemplated by the
Merger Agreement shall be conditioned or restricted in a manner (including
requirements relating to the raising of additional capital or the disposition
of assets) which in the reasonable judgment of the Board of Directors of CBI
would so materially adversely impact the economic or business benefits of the
transactions contemplated by the Merger Agreement that, had such condition or
requirement been known, such party would not, in its reasonable judgment, have
entered into the Merger Agreement; (iii) each party shall have received any
required consents of third parties; (iv) no court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any law or order (whether temporary, preliminary or
permanent) or taken any other action which prohibits, restricts or makes
illegal consummation of the transactions contemplated by the Merger Agreement;
(v) the Registration Statement of which this Proxy Statement/Prospectus is a
part shall have been declared effective by the Commission and shall not be
subject to a stop order or any threatened stop order, and the shares of CBI
Common Stock issuable in connection with the Merger shall have been qualified,
registered or otherwise approved for exchange under the securities laws of the
various states in which such qualification, registration or approval is
required; (vi) CBI and CFB shall have received an opinion of Alston & Bird as
to certain federal income tax matters (see "--Certain Federal Income Tax
Consequences"); (vi) CBI and CFB shall have received a letter from Purvis and
Gray, or such other independent auditors mutually acceptable to CBI and CFB, to
the effect that the Merger will qualify for pooling-of-interests accounting
treatment and that such firm is not aware of any matters relating to CFB which
would preclude the Merger from qualifying for pooling-of-interests accounting;
(viii) the other party's representations and warranties shall remain accurate,
and the other party shall have performed all of the agreements, covenants, acts
and undertakings to be performed by it pursuant to the Merger Agreement, and
shall have delivered certificates confirming satisfaction of the foregoing
requirements; (ix) each of the directors and officers of CFB and CFBO shall
have executed and delivered to CBI claims release letters releasing CFB, CFBO,
CBI, CNBL and their respective directors, officers, employees, agents,
representatives, affiliates and controlling persons from certain claims; (x)
CBI shall have received letters from each affiliate of CFB to the extent
necessary to assure (a) securities law compliance and (b) that the transactions
contemplated in the Merger Agreement will qualify for pooling-of-interests
accounting treatment; (xi) all options to purchase shares of CFB Common Stock
shall have been exercised in full; (xii) each party shall have received an
opinion of the other party's counsel, dated as of the closing date, as to
certain matters relating to among other things, the due organization of CFB and
CBI and due authorization of
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<PAGE> 36
the Merger Agreement by each party; and (xiii) CBI shall have received a letter
from CFB's independent auditors with respect to certain financial information
regarding CFB.
No assurances can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the appropriate
party. As of the date of this Proxy Statement/Prospectus, the parties know of
no reason to believe that any of the conditions set forth above will not be
satisfied.
The conditions to consummation of the Merger may be waived, in whole
or in part, to the extent permissible under applicable law, by the party for
whose benefit the condition has been imposed, without the approval of the CFB
shareholders. See "--Amendment, Waiver, and Termination."
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Federal Reserve
under the BHC Act. CBI has filed all applications required to be filed with the
Federal Reserve and the OCC in connection with the Merger and the Bank Merger,
respectively. Each of these mergers (collectively, the "Mergers") may not be
consummated until the 15th day after regulatory approval, during which time the
United States Department of Justice has the opportunity to file an action
seeking to enjoin consummation of the Merger on antitrust grounds. The OCC
approved the Bank Merger on February 2, 1996, and the Federal Reserve approved
the Merger on February 15, 1996. The Mergers are expected to close on the same
day, and therefore no application to, or approval of, the Florida Department of
Banking is expected to be required.
AMENDMENT, WAIVER AND TERMINATION
To the extent permitted by law, the Merger Agreement may be amended by
a subsequent writing signed by each of the parties upon the approval of their
respective Boards; provided, however, that after the Special Meeting, no
amendment may alter the manner or relative basis in which shares of CFB Common
Stock will be exchanged for CBI Common Stock without the requisite approval of
the holders of the issued and outstanding shares of CFB Common Stock entitled
to vote thereon.
Prior to or at the Effective Time, either CFB or CBI, acting through
its respective Boards, chief executive officer or other authorized officer, may
waive any default in the performance of any term of the Merger Agreement by the
other party, may waive or extend the time for the fulfillment by the other
party of any of its obligations under the Merger Agreement, and may waive any
of the conditions precedent to the Merger Agreement, except any condition that,
if not satisfied, would result in the violation of any law.
The Merger Agreement may be terminated, and the Merger abandoned, at
any time prior to the Effective Time by mutual consent of the Boards of CFB and
CBI. In addition, the Merger Agreement may be terminated, and the Merger
abandoned, prior to the Effective Time by either CBI or CFB if (i) the other
party materially breaches and does not timely cure any representation,
warranty, covenant or other agreement contained in the Merger Agreement, (ii)
any consent or approval of certain regulatory authorities is denied by final
nonappealable action of such authority or (iii) the Merger has not been
consummated, or the conditions precedent to the obligations of such party to
consummate the Merger cannot be satisfied or fulfilled, by April 30, 1996,
unless extended.
In addition, the Merger Agreement may be terminated, and the Merger
abandoned, prior to the Effective Time by CBI in the event that the Board of
Directors of CFB shall have failed to reaffirm, after CFB shall have received
an "Acquisition Proposal" (as defined below), its approval of the Merger and
the transactions contemplated by the Merger Agreement (to the exclusion of any
other Acquisition Proposal), or shall have resolved not to reaffirm the Merger.
An "Acquisition Proposal" means any tender offer or exchange offer or any
proposal for a merger, acquisition of all of the stock or assets of, or other
business combination involving CFB or the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, CFB.
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<PAGE> 37
CONDUCT OF BUSINESS PENDING THE MERGER
CFB has agreed in the Merger Agreement, unless the prior consent of
CBI is obtained, and except as otherwise contemplated by the Merger Agreement,
to operate its business only in the ordinary course, to preserve its business
organizations and assets and to maintain its rights and franchises. Each of
CFB and CBI has agreed to take no action that would adversely affect either the
ability of either party to perform its covenants and agreements under the
Merger Agreement or the ability of either party to obtain any consents or
approvals pursuant to any contract, law, order or permit that are required for
the transactions contemplated by the Merger Agreement. CBI has agreed that,
prior to the Effective Time, it will continue to conduct its business and the
business of its subsidiaries in a manner designed in its reasonable judgment to
enhance the long-term value of the CBI Common Stock and the business prospects
of CBI and will not amend its Certificate of Incorporation or Bylaws in any
manner adverse to the shareholders of CFB. In addition, the Merger Agreement
contains certain other restrictions applicable to the conduct of the business
of CFB prior to consummation of the Merger, as described below.
CFB has agreed in the Merger Agreement not to take certain actions
relating to the operation of its business pending consummation of the Merger
without the prior approval of CBI. Those actions generally include, without
limitation: (i) amending its Articles of Incorporation ("Articles") or Bylaws;
(ii) becoming responsible for any obligation for borrowed money, except in the
ordinary course of the business of CFB's subsidiaries consistent with past
practices; (iii) acquiring or exchanging any shares of its capital stock or
paying any dividend or other distribution in respect of its capital stock; (iv)
subject to certain exceptions, issuing, selling or pledging additional shares
of any CFB capital stock, any rights to acquire any such stock or any security
convertible into such stock, except pursuant to the exercise of outstanding
stock options; (v) adjusting or reclassifying any of its capital stock; (vi)
selling or encumbering any CFB asset other than in the ordinary course of
business for reasonable and adequate consideration; (vii) subject to certain
exceptions, investing in or acquiring control over any other entity; (viii)
granting any increase in compensation or benefits to its employees or officers
(except as previously disclosed to CBI or as required by law), paying any bonus
(except as previously disclosed to CBI or in accordance with any existing
program or plan), entering into or amending any severance agreements with its
officers or granting any increase in compensation or other benefits to any of
its directors (except as previously disclosed to CBI); (ix) entering into or
amending any employment contract that it does not have the unconditional right
to terminate without certain liability, except as previously disclosed to CBI
and except for any amendment required by law; (x) adopting any new employee
benefit plan or program or materially changing any existing plan or program;
(xi) making any significant changes in accounting methods, except for any
change required by law; (xii) commencing any litigation other than in
accordance with past practice or settling any litigation for material money
damages or restrictions upon the operations of CFB or its affiliates; (xiii)
materially amending or terminating any material contracts; or (xiv) obtaining
any advances or otherwise borrowing any monies from, or become indebted to, the
Federal Home Loan Bank of Atlanta.
In addition, CFB has agreed not to solicit, directly or indirectly,
any Acquisition Proposal from any other person or entity. CFB also has agreed
not to negotiate with respect to any such proposal, to provide information to
any party making such a proposal or to enter into any agreement with respect to
any such proposal except in compliance with its legal obligations or the
fiduciary obligations of its Board of Directors. CFB has also agreed to use
reasonable efforts to cause its advisors and other representatives not to
engage in any of the foregoing activities.
EXPENSES AND FEES
The Merger Agreement provides that each party shall be responsible for
its own costs and expenses incurred in connection with the negotiation and
consummation of the transactions contemplated by the Merger Agreement,
including filing, registration and application fees, printing fees and expenses
of its own financial or other consultants, investment bankers, accountants and
counsel; provided, that CFB and CBI shall each pay one-half of the filing fees
payable and printing costs incurred in connection with the Registration
Statement and this Proxy Statement/Prospectus.
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<PAGE> 38
ACCOUNTING TREATMENT
The Merger is anticipated to be accounted for as a
pooling-of-interests. Under this method of accounting, as of the Effective
Time, the assets and liabilities of CFB would be added to those of CBI at their
recorded book values and the shareholders' equity accounts of CBI and CFB would
be combined on CBI's consolidated balance sheet. The unaudited pro forma
financial information contained or incorporated by reference in this Proxy
Statement/Prospectus has been prepared using the pooling-of-interests
accounting method to account for the Merger. Consummation of the Merger is
conditioned on, among other things, receipt by CBI and CFB of a letter from
Purvis & Gray or such other independent public accounting firm mutually
acceptable to CBI and CFB to the effect that the Merger will qualify for
pooling-of- interests accounting treatment. See "SUMMARY" and "PRO FORMA
CONDENSED COMBINED FINANCIAL DATA."
RESALE OF CBI COMMON STOCK
The shares of CBI Common Stock issued in connection with the Merger
will be freely transferable under the Securities Act, except for shares issued
to any shareholder who may be deemed to be an "affiliate" (generally including,
without limitation, directors, certain executive officers, and beneficial
owners of 10% or more of any class of capital stock) of CFB for purposes of
Rule 145 under the Securities Act as of the date of the Special Meeting or for
purposes of applicable interpretations regarding pooling-of-interests
accounting treatment. Such affiliates may not sell their shares of CBI Common
Stock acquired in connection with the Merger, except pursuant to an effective
registration statement under the Securities Act or other applicable exemption
from the registration requirements of the Securities Act and until such time as
financial results covering at least 30 days of combined operations of CBI and
CFB after the consummation of the Merger have been published. CBI may place
restrictive legends on certificates representing CBI Common Stock issued to all
persons who are deemed to be "affiliates" of CFB under Rule 145. In addition,
CFB has agreed to use its reasonable efforts to cause each person or entity
that is an "affiliate" to enter into a written agreement relating to such
restrictions on sale or other transfer. This Proxy Statement/Prospectus does
not cover any resales of CBI Common Stock received as a result of the Merger by
persons who may be deemed affiliates of CFB or CBI.
DISSENTERS' RIGHTS
Florida law provides that shareholders may dissent from and receive
payment for the fair value of their shares in the event of any plan of merger
to which the corporation is a party if the shareholder is entitled to vote on
the merger. Any shareholder (1) who objects to the Merger Agreement and files
a written notice of intent with CFB, President, Citizens First Bank, 1601 S. W.
College Road, Ocala, Florida 34478, to object to the Merger, and (2) whose
shares are not voted in favor of approval of the proposed Merger (a "Dissenting
Shareholder"), has the right to demand in writing from CFB, at the foregoing
address, within 10 days after the date on which the vote was taken, payment of
the fair value of such shareholder's shares.
Within 10 days after the Effective Time of the Merger, CBI must give
written notice to each Dissenting Shareholder who has made such demand and must
make a written offer to each dissenting shareholder to pay the fair value of
such shares (the "CBI Notice"). CBI will then pay to each Dissenting
Shareholder, upon surrender of the certificate(s) representing such shares, the
fair value thereof as of the day prior to the date on which the vote was taken,
excluding any appreciation or depreciation on anticipation of such corporate
action.
If, within 30 days after the mailing of the CBI Notice, the fair value
of such shares is agreed upon between any such Dissenting Shareholder and CBI,
payment therefor must be made within 90 days after the mailing of the CBI
Notice. If CBI and any dissenting shareholder are unable to agree on a fair
value within 30 days after the mailing of the CBI Notice, such shareholder must
make written demand on CBI within 60 days after the mailing of the CBI Notice.
Within 30 days after receipt of such written demand CBI must, or at its
election at any time within 60 days after the mailing of the CBI Notice may,
file an action in any court of competent jurisdiction in Lake County asking for
a judicial determination of the fair value of such shares. If CBI fails to do
so, any dissenting shareholder may institute the proceeding in CBI's name.
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<PAGE> 39
The court will direct payment of the value of the shares by CBI to the
dissenting shareholder, including interest from the date of the vote to the
date of the payment, upon the surrender of the certificates representing such
shares. CBI will bear the costs and attorney's fees of any such proceeding,
but all or part may be apportioned and assessed by the court against dissenting
shareholders if the court finds that the action of such shareholders, in
failing to accept an offer, was not in good faith.
Within 20 days after receiving the CBI Notice, a dissenting
shareholder must submit a notice of election stating the shareholder's name and
address, the number of shares as to which the dissent relates, demand for
payment and the certificate(s) to CBI for notation thereon that such demand has
been made. Failure to do so will, at the option of CBI, terminate such
shareholder's rights to receive payment. Such notice must be delivered to Mr.
Kenneth W. Mullis, Citi-Bancshares, Inc., 1211 N. Boulevard West, Leesburg,
Florida 34738.
THE FOREGOING SUMMARY OF THE APPLICABLE PROVISIONS OF SECTIONS
607.1301 THROUGH 607.1320 OF THE FBCA IS NOT INTENDED TO BE A COMPLETE
STATEMENT OF SUCH PROVISIONS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH SECTIONS, WHICH ARE INCLUDED AS ANNEX B HEREOF.
Any dissenting CFB shareholder who perfects such holder's right to be
paid the value of such holder's shares will recognize taxable gain or loss upon
receipt of cash for such shares for federal income tax purposes. See "--Certain
Federal Income Tax Consequences."
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<PAGE> 40
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following pro forma condensed combined balance sheet as of
September 30, 1995, reflects the assumed consummation of the Merger accounted
for under the pooling-of-interests method as of that date. The following pro
forma condensed combined statements of operations for the nine months ended
September 30, 1995, and for each year in the three years ended December 31,
1994, reflect that CFB and CBI had been combined for each period presented on a
pooling-of-interests basis. See "THE MERGER--Accounting Treatment."
The pro forma financial data has been prepared by the managements of
CBI and CFB based upon the historical financial statements of CBI and CFB.
These pro forma statements may not be indicative of the results that actually
would have occurred if the transactions had been effective on the dates
indicated or which may be obtained in the future.
The unaudited pro forma combined financial statements should be read
in conjunction with the historical consolidated financial statements, including
the notes thereto of CBI and CFB, incorporated or included herein. See
"AVAILABLE INFORMATION" and "FINANCIAL STATEMENTS."
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<PAGE> 41
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1995
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
CBI
AND CFB
CBI CFB ADJUSTMENTS PRO FORMA
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
- ------
Cash and due from banks $ 14,370 $ 2,567 _ $ 16,937
Federal funds sold 7,754 1,656 _ 9,410
Due from banks (time) 0 10 _ 10
Investment securities _
Available for sale 138,170 9,146 _ 147,316
Held to maturity 67,967 0 _ 67,967
Loans 220,962 24,787 _ 245,749
less allowance for loan losses (3,234) (403) _ (3,637)
Bank premises and equipment 6,880 1,431 _ 8,311
Goodwill 0 0 _ 0
Other assets 7,022 344 _ 7,366
-------- ---------- ------- ----------
Total assets $459,891 $ 39,538 _ $ 499,429
======== ========== ==========
Liabilities
- -----------
Deposits $404,222 $ 35,039 _ $ 439,261
Federal funds purchased and securities _
sold under agreements to repurchase 7,834 _ _ 7,834
Other liabilities 4,735 265 _ 5,000
-------- ---------- ------- ----------
Total liabilities 416,791 35,304 _ 452,095
Shareholders' equity
- --------------------
Common stock 42 30 (26)(1) 46
Surplus 11,208 3,818 26 15,052
Retained earnings 32,106 398 32,504
Unrealized depreciation on securities
available for sale 536 (12) _ 524
Treasury stock (792) 0 _ (792)
-------- ---------- ------- ----------
Total shareholders' equity 43,100 4,234 0 47,334
-------- ---------- ------- ----------
Total liabilities and shareholders' equity $459,891 $ 39,538 _ $ 499,429
======== ========== ======= ==========
</TABLE>
________________________________
(1) To reflect 425,000 shares of CBI Common Stock issued for all of the
outstanding shares of CFB Common Stock.
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<PAGE> 42
PRO FORMA CONDENSED STATEMENT OF INCOME
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995
UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
CBI AND CFB
CBI CFB ADJUSTMENTS PRO FORMA
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . $25,178 $ 2,283 -- $27,461
Interest expense . . . . . . . . . . . . . . . . . . . . 12,184 858 -- 13,042
Net interest income . . . . . . . . . . . . . . . . . . . 12,994 1,425 -- 14,419
Provision for loan loss . . . . . . . . . . . . . . . . . 255 0 -- 255
------- ------- -------
Net interest after provision for loan loss . . . . . . . 12,739 1,425 -- 14,164
Noninterest income . . . . . . . . . . . . . . . . . . . 1,685 438 -- 2,123
Noninterest expense . . . . . . . . . . . . . . . . . . . 7,957 1,243 -- 9,200
------- ------- -------
Income before income taxes . . . . . . . . . . . . . . . 6,467 620 -- 7,087
Income tax provision . . . . . . . . . . . . . . . . . . 1,699 209 -- 1,908
------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 4,768 $ 411 -- $ 5,179
======= ======= =======
Primary earnings per share . . . . . . . . . . . . . . . $ 1.18 $ 1.16
Fully diluted earnings per share . . . . . . . . . . . . 1.18 1.16
Average shares outstanding - Primary . . . . . . . . . . 4,048 4,473
Average shares outstanding - Fully diluted . . . . . . . 4,057 4,477
</TABLE>
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<PAGE> 43
PRO FORMA CONDENSED STATEMENT OF INCOME
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1994
UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
CBI CFB ADJUSTMENTS PRO FORMA
------- ------- ------------- --------
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . $21,812 $ 1,455 -- $23,267
Interest expense . . . . . . . . . . . . . . . . . . . . 9,037 317 -- 9,354
Net interest income . . . . . . . . . . . . . . . . . . . 12,775 1,138 -- 13,913
Provision for loan loss . . . . . . . . . . . . . . . . . 523 0 -- 523
------- ------- ------- -------
Net interest after provision for loan loss . . . . . . . 12,252 354 -- 13,390
Noninterest income . . . . . . . . . . . . . . . . . . . 1,471 1,138 -- 1,775
Noninterest expense . . . . . . . . . . . . . . . . . . . 7,664 1,260 -- 8,924
------- ------- -------
Income before income taxes . . . . . . . . . . . . . . . 6,009 232 -- 6,241
Income tax provision . . . . . . . . . . . . . . . . . . (1,547) (74) -- 1,621
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 4,462 $ 158 -- $ 4,620
======= ======= ======= =======
Primary earnings per share . . . . . . . . . . . . . . . $ 1.10 $ 1.03
Fully diluted earnings per share . . . . . . . . . . . . 1.10 1.03
Average shares outstanding - Primary . . . . . . . . . . 4,048 4,473
Average shares outstanding - Fully diluted . . . . . . . 4,048 4,473
</TABLE>
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
CBI CFB ADJUSTMENTS PRO FORMA
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . $29,594 $ 2,066 -- $31,660
Interest expense . . . . . . . . . . . . . . . . . . . . 12,455 464 -- 12,919
Net interest income . . . . . . . . . . . . . . . . . . . 17,139 1,602 -- 18,741
Provision for loan loss . . . . . . . . . . . . . . . . . 600 0 -- 600
------- ------- ------- -------
Net interest after provision for loan loss . . . . . . . 16,539 1,602 -- 18,141
Noninterest income . . . . . . . . . . . . . . . . . . . 2,005 491 -- 2,496
Noninterest expense . . . . . . . . . . . . . . . . . . . 10,457 1,670 -- 12,127
------- ------- -------
Income before income taxes . . . . . . . . . . . . . . . 8,087 423 -- 8,510
Income tax provision . . . . . . . . . . . . . . . . . . 2,082 139 -- 2,221
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 6,005 $ 284 -- 6,289
======= ======= ======= =======
Primary earnings per share . . . . . . . . . . . . . . . $ 1.48 $ 1.41
Fully diluted earnings per share . . . . . . . . . . . . 1.48 1.41
Average shares outstanding - Primary . . . . . . . . . . 4,048 4,473
Average shares outstanding - Fully diluted . . . . . . . 4,048 4,473
</TABLE>
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<PAGE> 44
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
CBI CFB ADJUSTMENTS PRO FORMA
------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . $27,499 $ 1,756 -- $29,255
Interest expense . . . . . . . . . . . . . . . . . . . . 11,786 385 -- 12,171
Net interest income . . . . . . . . . . . . . . . . . . . 15,713 1,371 -- 17,084
Provision for loan loss . . . . . . . . . . . . . . . . . 1,075 21 -- 1,096
------- ------- ------- -------
Net interest after provision for loan loss . . . . . . . 14,638 1,350 -- 15,988
Noninterest income . . . . . . . . . . . . . . . . . . . 2,574 540 -- 3,114
Noninterest expense . . . . . . . . . . . . . . . . . . . 9,897 1,624 -- 11,521
------- ------- ------- -------
Income before income taxes . . . . . . . . . . . . . . . 7,315 266 -- 7,581
Income tax provision . . . . . . . . . . . . . . . . . . 1,842 64 -- 1,906
------- ------- ------- -------
Income from continuing operations
before cumulative effect
of change in accounting principle . . . . . . . . . 5,473 202 -- 5,675
Cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . 255 371 -- 626
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 5,728 $ 573 -- $ 6,301
======= ======= ======= =======
Primary earnings per share . . . . . . . . . . . . . . . $ 1.41 $ 1.41
Fully diluted earnings per share . . . . . . . . . . . . 1.41 1.41
Average shares outstanding - Primary . . . . . . . . . . 4,050 4,475
Average shares outstanding - Fully diluted . . . . . . . 4,050 4,475
</TABLE>
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1992
UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
CBI CFB ADJUSTMENTS PRO FORMA
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . $27,868 $ 1,860 -- $29,728
Interest expense . . . . . . . . . . . . . . . . . . . . 13,517 660 -- 14,177
Net interest income . . . . . . . . . . . . . . . . . . . 14,351 1,200 -- 15,551
Provision for loan loss . . . . . . . . . . . . . . . . . 1,400 50 -- 1,450
------- ------- -------
Net interest after provision for loan loss . . . . . . . 12,951 1,150 -- 14,101
Noninterest income . . . . . . . . . . . . . . . . . . . 3,085 548 -- 3,633
Noninterest expense . . . . . . . . . . . . . . . . . . . 9,326 1,612 -- 10,938
------- ------- -------
Income before income taxes . . . . . . . . . . . . . . . 6,710 86 -- 6,796
Income tax provision . . . . . . . . . . . . . . . . . . 1,777 0 -- 1,777
------- ------- -------
Net income 4,933 86 -- 5,019
======= ======= =======
Primary earnings per share . . . . . . . . . . . . . . . $ 1.22 $ 1.12
Fully diluted earnings per share . . . . . . . . . . . . 1.22 1.12
Average shares outstanding - Primary . . . . . . . . . . 4,053 4,478
Average shares outstanding - Fully diluted . . . . . . . 4,053 4,478
</TABLE>
-35-
<PAGE> 45
CFB'S MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is designed to provide a better
understanding of various factors related to the financial condition and results
of operations of CFB during the past three years, and the nine-month periods
ended September 30, 1994 and 1995. This discussion and analysis is intended to
supplement and highlight information contained in the accompanying consolidated
financial statements and the selected financial data presented elsewhere.
SUMMARY
Net income for 1994 was $284,000, a 50% decrease from CFB's net income of
$573,000 in 1993. During 1993, CFB had income from the cumulative effect on
prior years of changing method of accounting for income taxes of $371,000.
This was the result of applying Statement No. 109 Accounting for Income Taxes
of the Financial Accounting Standards Board (FASB 109). Income before this
cumulative effect was $202,000 for 1993; therefore, 1994 income before the
cumulative effect was an increase of $82,000 or 40.3%. Net income for 1993 was
$487,000 higher than 1992. Income in 1993 before the cumulative effect was
$116,000 (134.9%) higher than that in 1992. CFB's earnings continue to be
aided by improved asset qualityand high net interest margin.
Net income for the nine months ended September 30, 1995 was $411,000, a
$253,000 (160.1%) increase over the same period ended September 30, 1994.
Earnings were aided by improved asset quality, high net interest margins and
good overhead control. On an annualized basis return on average assets was
1.46% and return on average shareholders' equity was 15.10% for the nine months
in 1995, compared to the prior years' annualized results of .78% and 7.62%,
respectively, for the comparative period.
Total assets at September 30, 1995 were $39,538,000, a 25.5% increase from
December 31, 1994 fiscal year end. For the same nine month period, deposits
increased 33.3% to $33,547,000, mainly in time deposits. This growth was the
direct result of aggressive marketing and higher interest rates offered by CFB.
Through September 30, 1995, net interest income was $1,425,000, 25.2%
higher than the $1,138,000 for the nine months ended September 30, 1994. The
increase in interest income resulted from a 38.3% increase in the volume of
average earning assets from the year earlier period. Much of the volume
increase was in the loan portfolio, which grew $3,077,000 (14.2%) in the nine
months since year end.
During the nine months ended September 30, 1995, CFB received new capital
of $811,000. The capital received came from the exercise of 9,600 stock
options under an existing employee stock option plan at the exercise price of
$10.05 per common share and the exercise of 71,455 stock warrants at an
exercise price of $10.00 per common share. The total number of shares issued
in the above transactions was 81,055. The total number of CFB shares
outstanding at September 30, 1995 was 304,480, excluding 18,000 shares held by
CFB employees under options.
RECENT DEVELOPMENTS
CFB's net income for 1995 totaled $654,000 or $2.02 per share compared
with $284,000 or $1.12 per share in 1994 and $573,000 or $2.26 per share in
1993. Earnings were aided by improved asset quality, and good overhead
control. Return on average assets was 1.68% and return on average
shareholders' equity was 17.19% for 1995, compared to the prior year's results
of 1.01% and 10.13%, respectively, and 1993's results of 2.27% and 23.32%,
respectively. As a result of the FDIC's Bank Insurance Fund ("BIF") becoming
fully funded, CFB received in 1995 $20,135 of refunds of deposit insurance
premiums previously paid, and its deposit insurance premiums were reduced to
$2,000 per annum for the balance of 1995 and for 1996.
CFB's average earnings assets for 1995 increased $7,843,000 or 29.0%
compared to the prior year as a result of increased loans and investment
securities. Average loan balances have increased $5,097,000 or 26.68% from the
-36-
<PAGE> 46
prior year to $24,198,000, while average investment securities increased
$2,616,000 or 54.06% to $7,455,000. For the same period, average deposits
increased 36.11% to $34,213,000, mainly in time deposits.
Net interest income for 1995 was $1,938,000, 21.0% higher than the
$1,601,000 realized in 1994. The increase in interest income resulted
primarily from a 29.0% increase in the volume of average earning assets from 12
months earlier. Much of the volume increase was in the loan portfolio, which
grew $3,119,000 (13.8%) in 1995.
The Company's ratio of shareholders' equity to period end assets was
11.32% after the adjustment for FASB No. 115 and 11.33% excluding assets and
capital attributed to FASB No. 115. The ratio of 11.33% at December 31, 1995
(net of FASB No. 115) compares to the year end 1994 ratio of 9.60% and the year
end 1993 ratio of 11.01%. At year-end 1995, CFB had a Tier 1 capital ratio of
10.33 % and a leverage ratio of 11.33%, all in excess of minimum regulatory
requirements. See "Supervision and Regulation."
-37-
<PAGE> 47
FINANCIAL CONDITION
Earning Assets
Average earning assets in 1994 increased 12.48% over 1993, primarily due to
an increase in average loans outstanding. In 1994 and 1993, average earning
assets were 87.63% and 87.06% of average assets, respectively. The earning
asset mix changed slightly during 1994 with loans at 77.40%, investment
securities at 19.62%, and other earning assets at 2.98%. In 1993, loans were
68.23%, investment securities were 26.26% and the other earning assets were
5.51%. The mix of earning assets is monitored closely in an effort to
anticipate interest rate movements and take advantage of better interest rate
spreads and, therefore, to maintain or improve the return on earning assets.
Loan Portfolio
Average net loans increased 27.59% in 1994, with much of the growth
occurring in the real estate and installment loan categories. Total net loans
outstanding increased 15.40% from year-end 1992 to year-end 1993 to
$15,834,000. The loan growth for 1994 was primarily funded through deposit
growth and prepayments from the investment portfolio. Residential mortgage
loans increased 39.1% or $2,845,000, and commercial mortgage loans increased
$1,796,000 or 57.5%. Consumer installment loans increased $2,197,000 or 62.4%
from year-end 1993 to year-end 1994. Commercial, financial, and agricultural
loans, which were 14.31% of total loans in 1993 decreased $445,000 in 1994 to
$1.878 million or 8.3% of total loans at year-end 1994. For the first nine
months of 1995, CFB's total loan portfolio increased $2,186,000 or 9.7%. The
commercial real estate category reflected the largest increase.
Commercial loans contain both unsecured and secured credits that include,
but are not limited to, the following types of collateral: equipment,
fixtures, inventory, and accounts receivable. Residential real estate and
commercial real estate are primarily secured by first mortgages. The consumer
loan category represents all types of consumer installment loans, both secured
and unsecured. Loans are subject to CFBO's loan policy as approved by its
Board of Directors. Exceptions to that policy are permitted, but only with
proper prior approval from the CFB Board. Generally, loans secured by real
estate with improvements are limited to an 80% loan-to-value ratio. However,
more stringent levels are enforced for unimproved land with plans for
development, where the current loan-to-value ratio is 75%. Unimproved or raw
land with no development plans is limited to a loan-to-value ratio of 65%.
First and second lien positions are considered in the aggregate when
determining loan-to-value ratios. Automobile loans are made up to the total
purchase price for new vehicles but are limited to the NADA loan value for used
vehicles. Loans secured with specialized equipment and machinery are usually
limited to 75% of the value of the collateral.
As of December 31, 1994, fixed rate loans totaled $10,401,000 with $462,000
maturing in less than three months and $646,000 maturing in three months to one
year. Those maturing in the one to five year category total $8,423,000. Fixed
rate loans with a maturity in excess of five years were $870,000. As of
December 31, 1994, floating rate loans repricing quarterly or more frequently
totaled $10,674,000. Management reviews its asset/liability gap monthly and
adjusts the interest rate sensitivity strategy accordingly. See "Interest Rate
Sensitivity."
CFB participates as intermediary for the secondary market underwriters of
residential loans. The secondary market mortgage company underwrites the
credit and CFB closes the loan with funding from the mortgage company
underwriter.
Participation loans purchased are subject to CFBO's underwriting criteria
as described in the lending policy. Presently, there is not a policy that
would preclude CFB from selling any loan from the loan portfolio.
CFBO's maximum secured legal lending limit under the Florida Banking Code
is any amount up to, but no more than 25% of its capital, surplus, and
undivided profits. As of September 30, 1995, CFBO had a legal secured lending
limit of approximately $1,057,000.
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<PAGE> 48
As indicated below, CFB's loan portfolio continues to reflect the Ocala
market served by CFBO. The condition of the economy in the State of Florida,
Marion County is further reflected in the loan portfolio mix. Real estate
construction loans decreased in the late 1980's and early 1990's due to
recessionary pressures, then increased as the demand for new construction rose
early in the ensuing economic recovery. Beginning in 1993, the economy
improved and the demand for construction loans gained momentum and continued
into 1994. CFB's real estate construction lending is nearly equally divided
between commercial and to one-to-four residential properties. With fewer
attractive lending opportunities in the commercial lending arena, other lending
opportunities were sought, which further contributed to the increase in the
real estate category within the portfolio.
CFB has not invested in loans to finance leveraged buy-out ("LBO")
transactions as defined by the Federal Reserve and other regulatory agencies.
Loans made by CFB for recapitalization or acquisitions (including acquisitions
by management or employees) which result in a material change in the borrower's
financial structure to a highly leveraged condition are considered LBO loans.
CFB had no foreign loans or loans to lesser developed countries as of December
31, 1994, or September 30, 1995.
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<PAGE> 49
The table below shows the classifications of loans by major category at
December 31, 1994, and December 31, 1993.
LOAN PORTFOLIO
YEARS ENDED DECEMBER 31,
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
---------------------- ----------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural . . . . . $ 1,878 8.30% $ 2,323 14.31%
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . 10,116 44.70% 7,271 44.78%
Commercial . . . . . . . . . . . . . . . . . . 4,920 21.74% 3,124 19.24%
Consumers:
Installments . . . . . . . . . . . . . . . . . 5,717 25.26% 3,520 21.67%
------- ------ ------- ------
Total . . . . . . . . . . . . . . . . . . . . . . 22,631 100.00% 16,238 100.00%
Less:
Unearned income . . . . . . . . . . . . . . . . (30) (17)
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . 22,601 16,221
------- -------
Less:
Allowance for loan losses . . . . . . . . . . . (410) (387)
------- -------
Total loans . . . . . . . . . . . . . . . . . . . $22,190 $15,834
======= =======
</TABLE>
SELECTED LOAN MATURITY AND INTEREST RATE SENSITIVITY
AS OF DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
RATE STRUCTURE FOR LOANS
MATURING OVER ONE YEAR
----------------------
ONE YEAR OVER PREDETERMINED FLOATING OR
ONE YEAR TO FIVE INTEREST ADJUSTABLE
OR LESS FIVE YEARS YEARS RATE RATE TOTAL
--------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural . . . . . . . $ 3,376 $ 869 $ 22 $ 891 $ 0 $ 4,267
Real estate . . . . . . . . 7,146 3,958 558 3,537 979 11,662
Consumer . . . . . . . . . . 1,260 4,446 966 4,865 547 6,672
------- ------- ------- ------- ------- -------
Total $11,782 $ 9,273 $ 1,546 $ 9,293 $ 1,526 $22,601
======= ======= ======= ======= ======= =======
</TABLE>
INVESTMENT PORTFOLIO
CFB's investment securities portfolio reflects CFB's investment strategy
of seeking portfolio yields consistent with risk and liquidity considerations.
The primary objectives of CFB's investment strategy are to maintain an
appropriate level of liquidity and provide a tool to assist in controlling CFB's
interest rate position while at the same time producing adequate levels of
interest income. For securities classified as investment securities, management
intends to maintain both a "Held to Maturity" portfolio and an "Available for
Sale" portfolio. The mix between the two portfolios provides flexibility in
managing CFB's investment portfolio. Management of the maturity of the portfolio
is necessary to provide liquidity and control interest rate risk.
Effective January 1, 1994, CFB adopted the investment categorization and
carrying value rules as required by Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 115 (FASB 115), Accounting for
Certain Investments in Debt and Equity Securities. Under FASB 115, CFB
classifies its investment securities as either available-for-sale or
held-to-maturity or trading. Held-to-maturity investments are carried at
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<PAGE> 50
amortized cost. Securities available-for-sale and trading are carried at market
value. At December 31, 1994, Federal Reserve and Federal Home Loan Bank of
Atlanta stock were classified as held-to-maturity, while all other securities
were classified as available-for-sale. For December 31, 1993, investment debt
securities were carried at amortized cost.
Average investment securities decreased $920,000 or 15.98% during 1994.
Year-end investment securities decreased $144,000 or 2.78% from 1993 to 1994.
During 1994 and 1993, there were no sales of investment securities. At year end
1994, there were no gross unrealized gains in the available-for-sale portfolio
and unrealized losses amounted to $129,000. At the same time, there were no
gross unrealized gains or losses in the held-to-maturity portfolio. In the
1994 held-to-maturity category, amortized cost approximated market value.
Generally, the values in the investment portfolio will decline as market rates
increase. The reverse will occur when market rates decrease causing the values
in the investment portfolio to increase. Management expects market rates to
decline over the next 12 months, thereby resulting in an improvement in the
unrealized value of the investment portfolio.
The following table sets forth the carrying value of the investment
securities portfolio at the end of each of the previous two years.
INVESTMENT PORTFOLIO
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993
---------- ----------
<S> <C> <C>
U.S. Treasury securities . . . . . . . . . . . . . . . . $1,965 $2,519
U.S. Agency obligations . . . . . . . . . . . . . . . . 2,409 1,997
Mortgage-backed securities . . . . . . . . . . . . . . . 479 569
Other securities . . . . . . . . . . . . . . . . . . . . 170 82
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $5,023 $5,167
====== ======
</TABLE>
The maturities and weighted-average yields of the investment securities
portfolio at the end of 1994 are presented in the following table using
primarily the stated maturities, and excluding the effects of prepayments. The
yield data is determined using the amortized cost of the securities. As of
December 31, 1994, 87.2% of the total carrying value of $5,023,000 of the
investment portfolio is comprised of U.S. Treasury and Agency obligations
compared to 87.4% at December 31, 1993. In addition, 9.5% of the total
investment securities are represented by mortgage-backed securities compared to
11.0% at December 31, 1993.
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<PAGE> 51
INVESTMENT PORTFOLIO MATURITY SCHEDULE
AS OF DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
AFTER ONE YEAR BUT AFTER FIVE YEARS BUT
WITHIN ONE YEAR WITHIN FIVE YEARS BUT WITHIN TEN YEARS AFTER TEN YEARS
--------------- ----------------- -------------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL
------ ----- ------ ----- ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 1,965 3.84% -- -- -- -- -- -- $ 1,965
securities
Federal agency -- -- $ 2,409 4.55% -- -- -- -- 2,409
Mortgage-backed -- -- -- -- -- -- $ 479 6.33% 479
securities
Other -- -- -- -- -- -- 170 -- 170
-------- -------- ------- ------ --------
Total $ 1,965 -- $ 2,409 -- $ -- -- $ 649 -- $ 5,023
======== ======== ===== ====== =======
</TABLE>
The average balance of interest-earning deposits held with other banks
remained constant from 1993 through 1994 at $1,200. This represented less than
1% of earning assets.
DEPOSITS AND SHORT-TERM BORROWINGS
The portion of average liabilities represented by interest-bearing
liabilities, the primary source of funding for CFB, increased $2,614,000 or
19.0% in 1994. Continued enhancement of existing products, introduction of new
products, and CFB's continuing emphasis of superior customer service contributed
to this increase. It is CFB's intent to expand its consumer deposit base in
order to continue to fund asset growth through growth in both demand deposits
and consumer savings accounts. Increases in average interest-bearing demand
deposits plus savings balances reflected this funding approach with a $2,104,000
or 26.19% increase in 1994. Falling interest rates, which continued into the
first quarter of 1994, resulted in customers maintaining higher
noninterest-bearing demand deposit balances. Throughout this period, CFB was
able to attract customers to lower cost deposit products. As interest rates
increased during 1994, consumers sought higher rates in time deposits and higher
yielding deposit accounts. Average noninterest-bearing liabilities, which
include noninterest-bearing demand deposits decreased by $24,000 during 1994,
representing a decrease of 0.3%. This trend continued through the first nine
months of 1995. During the nine months ended September 30, 1995, total deposits
increased $7,800,000 while time deposits increased $10,170,000. This growth in
time deposits was the direct result of aggressive marketing and higher rates
offered by CFBO.
Average balances for interest-bearing transaction accounts increased
$2,614,000 or 19.0% in 1994. Average certificates of deposit less than $100,000
increased $65,000 or 1.5% in 1994. Savings deposits and interest-bearing demand
deposits accounted for 62.1% of total average interest-bearing liabilities
during 1994. For 1993, these relatively low-cost deposits equaled 58.6% of
total average interest-bearing liabilities. As market interest rates increased
during 1994, CFB increased its deposit interest rates to attract additional
deposits that were used to fund loan growth. Total average time deposits,
including certificates of deposit over $100,000, were $6,048,000 during 1994
with the large certificates of deposit representing 10.2% of the total average
interest-bearing liabilities, up from 10.0% in 1993. The maturities of
certificates of deposit of $100,000 or more and other time deposits issued by
CFB as of December 31, 1994, are summarized in the following table:
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<PAGE> 52
MATURITIES OF TIME DEPOSITS
AS OF DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
OVER THREE OVER SIX MONTHS
THREE MONTHS MONTHS LESS LESS THAN OVER
OR LESS THAN SIX ONE YEAR ONE YEAR TOTAL
------------ ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Certificates of deposit over
$100,000 . . . . . . . . . . . . $ 511 $ 400 $ 1,459 $ 300 $ 2,670
Other time deposits . . . . . . . . 1,207 677 1,620 2,367 5,871
------------ ---------- ------------ -------- ---------
Total . . . . . . . . . . . . . . . $ 1,718 $ 1,077 $ 3,079 $ 2,667 $ 8,541
============ ========== ============ ======== =========
</TABLE>
Borrowed funds consist of short-term borrowings of federal funds purchased.
At the close of 1994 and 1993, CFB had $1,240,000 and $180,000 in federal funds
purchased, having a weighted average interest rate of 5.50% and 3.30%,
respectively. For 1995, the maximum amount of federal funds borrowed at any
month-end was $1,240,000. The average federal funds outstanding for 1995 was
$148,000 at a weighted average interest rate of 4.48%.
CAPITAL RESOURCES
Shareholders' equity increased to $2,944,000 at the end of 1994, compared
with $2,740,000 at the end of 1993, primarily due to current year earnings.
Excluding unrealized securities losses, shareholders' equity would have
increased in 1994 to $3,024,000. At September 30, 1995, CFB's shareholders'
equity was $4,234,000, an increase of $1,290,000 from December 31, 1994, of
which $811,000 represented new capital. The September 30, 1995, shareholders'
equity amount includes unrealized securities losses of $12,000. Excluding
these losses, shareholders' equity would have increased to $4,246,000.
No cash dividends have been paid on CFB's common stock. As of December 31,
1994, and September 30, 1995, CFB owned no shares of treasury stock.
A strong capital position promotes depositor and investor confidence and
provides a solid foundation for profitability and enhances the future growth of
the organization. CFB's capital significantly exceeds all minimum regulatory
capital requirements. See "SUPERVISION AND REGULATION."
Average shareholders' equity as a percentage of total average assets is one
measure used to determine capital strength. The ratio of average shareholders'
equity to average assets for 1994 was 10.0% compared to 9.8% in 1993. The
increase in the ratio is the result of a slight increase in shareholders'
equity and an increase in average assets.
RETURN ON EQUITY AND ASSETS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Return on average assets:
Before cumulative change in accounting principle . . . . . . . 1.01% 0.80%
Change in accounting principle . . . . . . . . . . . . . . . . --% 1.47%
------ ------
Net of change in accounting principle . . . . . . . . . . . . 1.01% 2.27%
------ ------
Return on average equity (including FASB 115 adjustment):
Before cumulative change in accounting principle . . . . . . . 10.13% 8.22%
Change in accounting principle . . . . . . . . . . . . . . . . --% 15.10%
----- -----
Net of change in accounting principle . . . . . . . . . . . . 10.13% 23.32%
----- -----
Return on average equity (excluding FASB 115 adjustment):
Before cumulative change in accounting principle . . . . . . . 9.96% 8.22%
Change in accounting principle . . . . . . . . . . . . . . . . --% 15.10%
---- -----
</TABLE>
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<PAGE> 53
<TABLE>
<S> <C> <C>
Net change in accounting principle . . . . . . . . . . . . . . 9.96% 23.32%
----- -----
Tier 1 capital to average assets (leverage ratio) . . . . . . . . 10.45% 10.88%
----- -----
</TABLE>
The various federal bank regulators, including the Federal Reserve, have
established risk-based requirements for assessing bank holding company and bank
capital adequacy. These standards define "capital" for regulatory purposes and
establish minimum capital standards in relation to assets and off-balance sheet
exposures, as adjusted for credit risks. Capital is grouped into two tiers.
For bank holding companies, Tier 1 or "core" capital consists of common
shareholders' equity, perpetual preferred stock (subject to certain
limitations) and minority interests in the common equity account of
consolidated subsidiaries, reduced by goodwill and certain investments in other
corporations ("Tier 1 Capital"). Tier 2 Capital consists of Tier 1 Capital, as
well as the allowance for possible loan losses (subject to certain
limitations), and certain subordinated debt "hybrid capital instruments,"
subordinated and perpetual debt and intermediate term and other preferred stock
("Tier 2 Capital"). See "SUPERVISION AND REGULATION."
At December 31, 1994, a risk-based capital measure and a minimum ratio
standard was fully phased-in with a minimum total capital ratio of 8.00% and
Tier 1 Capital equal to a least 50% of total capital. The Federal Reserve also
has a minimum leverage ratio of Tier 1 Capital to total assets of 3% to 5%.
The Federal Reserve has emphasized that the foregoing standards are
supervisory minimums and that an institution would be permitted to maintain
such minimum levels of capital only if it were rated a composite "one" under
the regulatory rating systems for bank holding companies and banks. All other
bank holding companies are required to maintain a leverage ratio of 3% plus at
least 1% to 2% of additional capital. These rules further provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, without significant
reliance on intangible assets. The Federal Reserve continues to consider a
"tangible Tier 1 leverage ratio" in evaluation proposal for expansion or new
activities. The tangible Tier 1 leverage ratio is the ratio of a banking
organization's Tier 1 Capital, less all intangibles, to total average assets.
The percentage ratios for CFB, as calculated under the guidelines, were 13.58%
and 14.89% for Tier 1 and Tier 2, respectively, at year end 1994, and its
leverage ratio was 9.34%. The Federal Reserve has not advised CFB of any
specific minimum leverage ratio applicable to it.
The following table sets forth the regulatory capital calculations of CFB
and its subsidiary on consolidated basis as of December 31, 1994 and 1993,
calculated in accordance with the applicable requirements of the Federal
Reserve in effect on such dates:
RISK BASED CAPITAL CALCULATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1994 1993
---------------------- ----------------------
<S> <C> <C> <C> <C>
Shareholders' equity . . . . . . . . . . . . . . . . . . $ 2,896 $ 2,734
Regulatory capital
Tier 1 risk based:
Actual . . . . . . . . . . . . . . . . . . . . . . . . 3,025 9.54% 2,734 10.15%
Minimum required . . . . . . . . . . . . . . . . . . . 1,902 6.00% 1,616 6.00%
---------- ----- --------- -----
Excess above minimum . . . . . . . . . . . . . . . . . 1,123 3.54% 1,118 4.15%
========== ===== ========= =====
Total risk based:
Actual . . . . . . . . . . . . . . . . . . . . . . . . 3,305 14.89% 2,946 17.53%
Minimum required . . . . . . . . . . . . . . . . . . . 1,778 8.00% 1,008 6.00%
---------- ----- --------- -----
Excess above minimum . . . . . . . . . . . . . . . . . 1,527 6.87% 1,938 11.53%
========== ===== ========= =====
Average assets (based on quarter ended December 31) . . . $ 31,700 $ 26,930
Total assets at year-end . . . . . . . . . . . . . . . . 31,676 25,087
Leverage Ratio . . . . . . . . . . . . . . . . . . . . . 9.34% 11.01%
</TABLE>
-44-
<PAGE> 54
BALANCE SHEET MANAGEMENT
Liquidity Management
Liquidity is the ability of a company to convert its assets into cash or
cash equivalents in a given time frame without significant loss. CFB's
liquidity management involves maintaining its ability to meet the day-to-day
cash requirements of its customers, whether they are depositors wishing to
withdraw funds or borrowers requiring funds to meet their credit needs.
The primary function of asset/liability management is not only to assure
adequate liquidity in order for CFB to meet the needs of its customer base, but
to maintain an appropriate balance ween interest-sensitive assets and
interest-sensitive liabilities so that CFB can profitably deploy its assets.
In a banking environment, both assets and liabilities are considered sources of
liquidity funding and both are, therefore, monitored on a daily basis.
The asset portion of the balance sheet provides liquidity primarily through
loan principal repayments and maturities of investment securities. Real estate
loan payments are becoming an increasingly important source of liquidity for
CFB as this portion of the loan portfolio continues to grow. Real estate and
commercial, financial and agricultural loans that mature in one year or less
amounted to $10,522,000 or 46.5% of the total loan portfolio at December 31,
1994. Investment securities maturing in the same time frame totaled $1,965,000
or 39.1% of the investment securities portfolio at year-end. Additional
sources of liquidity are federal funds sold and principal payments on
mortgage-backed securities held.
The liability portion of the balance sheet provides liquidity through
various customers' interest-bearing and noninterest-bearing accounts. These
sources of liquidity to fund asset growth and meet short-term liquidity needs.
Also, at year-end 1994, CFB had $800,000 in unsecured and $1,500,000 in secured
federal funds purchased lines available for purchase to provide short-term
liquidity.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is a function of the repricing characteristics of
CFB's portfolio of assets and liabilities over various time frames.
Interest-bearing assets and liabilities are subject to change in interest rates
either at replacement, repricing, or maturity during their respective lives.
Interest rate sensitivity management focuses on the maturity structure of
assets and liabilities and their repricing during periods of change in market
interest rates. Effective interest rate sensitivity management seeks to manage
changes in interest rates within an acceptable time frame, thereby managing the
effect of interest rate movements on net interest income. Interest rate
sensitivity is measured as the difference ween the volumes of assets and
liabilities that are subject to repricing at various time horizons. The
differences are known as interest rate sensitivity gaps: less than one month,
one to three months, four to 12 months, one to five years, over five years and
on a cumulative basis. The following table shows interest sensitivity gaps for
these different intervals as of December 31, 1994 and 1993.
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<PAGE> 55
INTEREST RATE SENSITIVITY ANALYSIS (1)
AS OF DECEMBER 31,
(Dollars in Thousands)
<TABLE>
<CAPTION>
0-3 4-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
------ ------ ----- ------ -----
1994
<S> <C> <C> <C> <C> <C>
Earning assets:
Loans (2) . . . . . . . . . . . . . . . $ 8,129 $ 6,266 $ 7,189 $ 1,010 $ 22,594
Investment securities (3) . . . . . . . . 144 4,223 487 169 5,023
-------- --------- -------- -------- --------
Total earning assets . . . . . . . . . . . 8,273 10,489 7,676 1,179 27,617
-------- --------- -------- -------- --------
Interest-bearing demand deposits . . . . . 7,760 0 0 0 7,760
Savings accounts . . . . . . . . . . . . . 2,758 0 0 0 2,758
Time deposits . . . . . . . . . . . . . . . 1,918 4,156 2,465 0 8,539
Federal funds purchased . . . . . . . . . . 1,240 0 0 0 1,240
-------- --------- -------- -------- --------
Total interest-bearing liabilities . . . . 13,676 4,156 2,465 0 20,297
-------- --------- -------- -------- --------
Interest sensitivity gap . . . . . . . . . (5,403) 6,333 5,211 1,179 7,320
Cumulative interest sensitivity gap/total
earnings assets . . . . . . . . . . . . (5,403) 930 6,141 7,320
Cumulative gap to earning assets (%) . . . (19.6%) 3.4% 22.2% 26.5%
Earning assets to interest-bearing
liabilities . . . . . . . . . . . . . . 60.5% 252.4% 311.4%
1993
Earning assets:
Loans (2) . . . . . . . . . . . . . . . $ 7,267 $ 4,262 $ 4,207 $ 465 $ 16,201
Investment securities (3) . . . . . . . 2,166 895 2,000 106 5,167
Total earning assets . . . . . . . . . . . 9,433 5,157 6,207 571 21,368
-------- --------- -------- -------- --------
Interest-bearing demand deposits . . . . . 5,539 0 0 0 5,539
Savings accounts . . . . . . . . . . . . . 2,707 0 0 0 2,707
Time deposits . . . . . . . . . . . . . . . 1,738 2,328 931 0 4,997
Federal funds purchased . . . . . . . . . . 180 0 0 0 180
-------- --------- -------- -------- --------
Total interest-bearing liabilities . . . . 10,164 2,328 931 0 13,423
-------- --------- -------- -------- --------
Interest sensitivity gap . . . . . . . . . (731) 2,829 5,276 571 7,945
Cumulative interest sensitivity gap/total
earning assets . . . . . . . . . . . . . (731) 2,098 7,374 7,945
Cumulative gap to earning assets (%) . . . (2.6%) 7.6% 26.7% 28.8%
Earning assets to interest-bearing
liabilities . . . . . . . . . . . . . . 92.8% 221.5% 666.7%
</TABLE>
(1) The repricing dates may differ from maturity dates for certain assets due
to repayment assumptions.
(2) Net of unearned discount and nonaccrual loans.
(3) Investment securities are stated at amortized cost.
-46-
<PAGE> 56
As seen in the preceding table, for the one year period, 87.8% of
interest-bearing liabilities will reprice compared to 67.9% of all
interest-bearing assets. In addition, the interest rate spread ween an
asset and its supporting liability can vary significantly while the timing of
repricing for both the asset and the liability remains the same, thus impacting
net interest income. This is referred to as basis risk, and, generally relates
to the possibility that the repricing characteristics of short-term assets tied
to CFB's prime lending rate are different from those of short-term funding
sources such as certificates of deposit and interest-bearing deposits.
Varying interest rate environments can create unexpected changes in
prepayment levels of assets which are not reflected in the interest sensitivity
analysis report, and changes in the mix of assets and liabilities. Prepayments
and such other changes may have significant effects on CFB's net interest
margin. Rates on assets and liabilities may not move completely in tandem.
Because of these factors, static modeling of the interest sensitivity gap
reports may not provide a complete assessment of CFB's exposure to changes in
interest rates. Management utilizes computerized interest rate simulation
analysis performed by a consultant to determine CFB's interest rate
sensitivity.
The above table indicates that CFB had a positive gap position based upon
contractual maturities and prepayment assumptions for the next 12 months with a
positive interest rate sensitivity gap as a percent of total earning assets of
3.4%. This means that CFB's liabilities reprice more slowly than its assets.
An asset sensitive company will benefit from a rising interest rate environment
as the yields on earning assets rise faster than costs of interest-bearing
liabilities. Conversely, a liability sensitive company will generally benefit
from a falling interest rate environment as the cost of interest-bearing
liabilities fall faster than the yields on interest-bearing assets. CFB's
asset- liability committee evaluates economic conditions, the pattern of market
interest rates and other economic data to determine the appropriate mix and
repricing characteristics of assets and liabilities required to produce an
optimal net interest margin.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the principal component of a financial institution's
income stream and represents the difference or spread ween interest
generated from earning assets and the interest expense paid on deposits and
other borrowed funds. Fluctuations in interest rates as well as volume and mix
changes in earning assets and interest-bearing liabilities can materially
affect net interest income. Since CFB had no tax-exempt income during 1994 or
1993, taxable equivalent basis ("TEB") does not differ from the amounts shown
in the financial statements.
Net interest income for 1994 increased $231,202 or 16.9% over 1993. Net
interest income for 1993 increased $171,000 or 14.3% over 1992. Increased
volumes of earning assets in 1994 were substantially responsible for the
increase net interest income in 1994, as the interest spread for CFB increased
only slightly. This moderate change in the spread was caused by two
situations. The first was CFB's strategy of protecting its deposit base by
offering higher rate time deposits when other financial institutions in its
local market sought to increase their deposits by raising interest rates
generally, and partially in a response to shifts by consumers to higher rate
deposits. The second situation was the increased volume of prepayments from
the mortgage-backed securities in the investment portfolio being reinvested at
lower interest rates. The "Rate Volume Variance Analysis" table which follows,
details the changes in interest income, interest expense and net interest
income due to changes in volumes and rates. Net interest income for the first
nine months of 1995 reflects improvement over the same period in 1994. Through
September 30, 1995, net interest income was $1,425,000, 25.2% higher than the
$1,138,000 for the nine months ended September 30, 1994.
Interest income increased $310,000 or 17.6% in 1994. In comparison,
interest income decreased in 1993 from 1992 by $104,000 or 5.6%. The increase
in interest income in 1994 resulted from a 12.5% increase in the volume of
average earning assets and a 37 basis point increase in the average interest
rate of earning assets. Much of the volume increase was in the loan portfolio,
which grew $6,380,000 (39.3%) in 1994. This growth was accompanied by a 20
basis point increase in the average interest rate earned on these loans.
Investment securities decreased
-47-
<PAGE> 57
$920,000, while at the same time the average interest rate earned on investment
securities fell 135 basis points. During 1994, the average amount of federal
funds sold to other banks decreased $472,000 or 39.1%, and the average yield
rose by 165 basis points.
Total interest expense increased by $78,000 or 20.3% in 1994 due to an
increase in average interest-bearing liabilities of $2,614,000 (19.0%) and a 2
basis point increase in the average rate paid on interest-bearing liabilities.
As of December 31, 1994, there was $1,240,000 in borrowed federal funds. Total
interest expense for 1993 decreased $275,000 from 1992, a 41.7% decrease. For
the nine-month period ending September 30, 1995, total interest expense
increased $541,000 from the same period in 1994 and totaled $858,000.
The trend in net interest income is commonly evaluated in terms of average
rates using the net interest margin and the interest rate spread. The net
interest margin, or the net yield on earning assets is computed by dividing
fully taxable equivalent net interest income by average earning assets. This
ratio represents the difference ween the average yield returned on average
earning assets and the average rate paid for all funds used to support those
earning assets, including both interest-bearing and noninterest-bearing sources
of funds. The net interest margin increased in 1994 by 25 basis points to
6.50%. The net cost of funds, defined as interest expense divided by average
earning assets, increased slightly by 11 basis points to 1.87% in 1994. The
rate paid on average interest-bearing liabilities rose 2 basis points above
1993 levels.
The interest rate spread measures the difference ween the average yield
on earning assets and the average rate paid on interest-bearing sources of
funds. The interest rate spread eliminates the effects of noninterest-bearing
funds and gives a direct perspective on the effect of market interest rate
movements. During recent years, the net interest margins and interest rate
spreads have been under pressure to maintain historical levels, due in part to
tax laws that discouraged investment in tax-exempt instruments. Other factors,
such as economic slowdowns, competition for funds with nonbank institutions,
nonbank competition for loans and changing regulatory supervision for some
financial intermediaries, further contributed to the pressure on margins. The
pressure was not unique to CFB and was experienced by the banking industry
generally. As a result of changes in the overall asset and liability mix,
combined with the heightened competition in CFB's local market for deposits
previously mentioned, CFB's interest rate spread slightly increased 30 basis
points from 5.2% in 1993 to 5.5% in 1994.
EFFECTS OF INFLATION AND CHANGING PRICES
Inflation generally increases the costs of funds and operating
overhead, and to the extent loans and other assets bear variable rates, the
yields on such assets. Unlike most industrial companies, virtually all of the
assets and liabilities of a financial institution are monetary in nature. As a
result, interest rates generally have a more significant impact on the
performance of a financial institution than the effects of general levels of
inflation. Although interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services, increases
in inflation generally have resulted in increased interest rates. From the
beginning of 1994 through the first quarter of 1995, the Federal Reserve has
increased interest rates 300 basis points in an effort to curb inflation
through monetary policy. In addition, inflation affects financial
institutions' increased cost of goods and services purchased, the cost of
salaries and benefits, occupancy expense, and similar items. Inflation and
related increases in interest rates generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings, and
shareholders' equity. Mortgage originations and refinancings tend to slow as
interest rates increase, and generally reduce earnings from such activities.
Changes in interest rates also affect the mix and types of deposits and assets
sought by customers. In the summer of 1995, the Federal Reserve reduced rates
by 50 basis points as inflation fears subsided. See "SUPERVISION AND
REGULATION--Fiscal and Monetary Policy."
-48-
<PAGE> 58
CFB
RATE VOLUME VARIANCE ANALYSIS
TAXABLE EQUIVALENT BASIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
AVERAGE VOLUME CHANGE IN VOLUME
---------------------------- ----------------------
1994 1993 1992 1994-93 1993-92
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of unearned
interest . . . . . . . . $ 19,092 $ 14,963 $ 12,258 $ 4,129 $ 2,705
Investment securities:
Taxable . . . . . . . . 4,839 5,759 8,366 (920) (2,607)
Tax-exempt . . . . . . .
--------- ----------- --------- ----------- -------
Total . . . . . . . . . . 4,839 5,759 8,366 (920) (2,607)
Federal funds sold . . . . 735 1,207 1,565 (472) (358)
Interest-bearing due from
banks. . . . . . . . . . 1 1 1 0 0
--------- ---------- --------- ----------- -------
Total earning assets . . . 24,667 21,930 22,190 2,737 (260)
========= ========== ========= =========== =======
Interest-bearing liabilities:
Demand. . . . . . . . . . 7,215 5,352 5,402 1,863 (50)
Savings . . . . . . . . . 2,924 2,683 2,729 241 (46)
Time deposits less than
$100,000 . . . . . . . . 4,379 4,314 6,439 65 (2,125)
Certificates of deposits
greater than $100,000. . 1,669 1,373 1,876 296 (503)
Federal funds purchased. . 149 0 122 149 (122)
Total interest-bearing
liabilities . . . . . . . 16,336 13,722 16,568 2,614 (2,846)
========= ========== ========= ========== =======
Net interest income/net
interest spread. . . . . 8,331 8,208 5,622 123 2,586
========= ========== ========= ========== =======
Net yield on earning
assets . . . . . . . . .
Net cost of funds. . . . .
</TABLE>
<TABLE>
<CAPTION>
AVERAGE RATE INCOME/EXPENSE
--------------------------- ------------------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of unearned
interest . . . . . . . . . . 9.62% 9.42% 10.01% $ 1,836 $ 1,409 $ 1,227
--------- --------- --------
Investment securities:
Taxable. . . . . . . . . . . 4.05% 5.40% 6.87% 196 311 575
--------- --------- --------
Tax-exempt
Total . . . . . . . . . . . . 4.05% 5.40% 6.87% 196 311 575
Federal funds sold . . . . . . 4.63% 2.98% 3.71% 34 36 58
Interest-bearing due from
banks . . . . . . . . . . .
--------- --------- --------
Total earning assets . . . . . 8.38% 8.01% 8.38% 2,066 1,756 1,860
========= ========= ========
Interest-bearing liabilities:
Demand . . . . . . . . . . . 2.16% 2.09% 2.62% 156 112 141
Savings. . . . . . . . . . . 2.19% 2.20% 2.75% 64 59 75
Time deposits less than
$100,000. . . . . . . . . . . 3.77% 3.80% 5.40% 165 164 348
Certificates of deposits
greater than $100,000 . . . . 4.25% 3.64% 4.90% 71 50 92
Federal funds purchased . . . 4.70% 3.28% 7 0 4
--------- --------- --------
Total interest-bearing
liabilities . . . . . . . . 2.83% 2.81% 3.98% 463 385 660
========= ========= ========
Net interest income/net
interest spread . . . . . . 5.54% 5.20% 4.40% 1,603 1,371 1,200
========= ========= ========
Net yield on earning assets. . 6.50% 6.25% 5.41%
Net cost of funds . . . . . . 1.87% 1.76% 2.97%
</TABLE>
[Table continued on next page]
-49-
<PAGE> 59
CFB
RATE VOLUME VARIANCE ANALYSIS (CONTINUED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
VARIANCE ATTRIBUTED TO
INCOME/EXPENSE ----------------------
VARIANCE 1994 1993
------------------- ------------------------------------------------------------------
1994-93 1993-92 VOLUME RATE MIX VOLUME RATE MIX
------- ------- ------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of
unearned interest $ 427 $ 182 $ 389 $ 38 $ 427 $ 271 $ (89) $ 182
------- ------ ------ ------ ------ ------- ------ -----
Investment securities:
Taxable . . . . . . . . (115) (264) (50) (65) (115) (179) (85) (264)
Tax-exempt . . . . . . .
Total . . . . . . . . . . . (115) (264) (50) (65) (115) (179) (85) (264)
------- ------ ------ ------ ------ ------- ------ -----
Federal funds sold. . . . .
(2) (22) (14) 12 (2) (13) (9) (22)
Interest-bearing
due from banks. . . . . . -- -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------- ------ -----
Total earning
assets . . . . . . . . . $ 310 $ (104) $ 325 $ (15) $ 310 $ 78 $ (182) $ (104)
======= ====== ====== ====== ====== ======= ====== ======
Interest-bearing
deposits:
Demand . . . . . . . . . $ 44 $ (29) $ 39 $ 5 $ 44 $ (1) $ (28) $ (29)
Savings . . . . . . . . . 5 (16) 5 0 5 (1) (15) (16)
Time deposits less
than $100,000 . . . . . 1 (184) 2 (1) 1 (115) (69) (184)
Certificates of
deposit greater
than $100,000 . . . . . 21 (42) 11 10 21 (25) (17) (42)
Federal funds
purchased . . . . . . . 7 (4) 0 7 7 (4) 0 (4)
------- ------ ------ ------ ------ ------- ------ -----
Total interest-
bearing deposits. . . . . $ 78 $ (275) $ 58 $ 20 $ 78 $ (146) $ (129) $ (275)
------- ------ ------ ------ ------ ------- ------ -----
Net interest income/
net interest spread . . . $ 232 $ 171 $ 268 $ (36) $ 232 $ 224 $ (53) $ 171
======= ====== ====== ====== ====== ======= ====== ======
</TABLE>
-50-
<PAGE> 60
CFB
CONSOLIDATED AVERAGE BALANCES,
INTEREST INCOME/EXPENSE AND YIELD/RATES
(Dollars in Thousands)
TAXABLE EQUIVALENT YIELD BASIS
<TABLE>
<CAPTION>
1994 1993 ONE YEAR
--------- -------- ----- --------- -------- ------ AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ GROWTH
BALANCE EXPENSE RATE BALANCE EXPENSE RATE RATE
--------- -------- ----- --------- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earnings assets:
Loans, net of unearned interest . . . $ 19,092 $ 1,836 9.62% $ 14,963 $ 1,409 9.42% 27.59%
--------- -------- ----- --------- -------- ----- --------
Investment securities:
Taxable . . . . . . . . . . . . . 4,839 196 4.04% 5,759 311 5.40% (15.97)%
Tax-exempt . . . . . . . . . . . . 0 0 0 0 0 0 0
--------- -------- ----- --------- -------- ----- --------
Total . . . . . . . . . . . . . . . . 4,839 196 4.04% 5,759 311 5.40% (15.97)%
Federal funds sold . . . . . . . . . 735 34 4.63% 1,207 36 2.98% (39.11)%
Interest-bearing due from banks 1 1 --%
--------- -------- ----- --------- -------- ----- --------
Total earning assets . . . . . . . . $ 24,667 $2,066 8.37% $ 21,930 $ 1,756 8.01 12.48%
--------- -------- ----- --------- -------- ----- --------
Allowance for loan losses . . . . . . (399) (354) 12.71%
Cash and due from banks . . . . . . . 2,334 2,219 5.18%
Other assets . . . . . . . . . . . . 1,571 1,393 12.78%
--------- -------- ----- --------- -------- ----- --------
Total assets . . . . . . . . . . . . $ 28,173 $ 25,188 11.85%
--------- -------- ----- --------- -------- ----- --------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits:
Demand . . . . . . . . . . . . . . $ 7,215 $ 156 2.16% $ 5,352 $ 112 2.09% 34.81%
Savings . . . . . . . . . . . . . 2,924 64 2.19% 2,683 59 2.20% (8.98)%
Time deposits less than
$100,000 . . . . . . . . . . . . 4,379 165 3.77% 4,314 164 3.80% 1.51%
Certificates of deposit more
than $100,000 . . . . . . . . . 1,669 71 4.25% 1,373 50 3.64% 21.56%
Federal funds purchased . . . . . 149 7 4.70% --0 --0 --% 100.00%
--------- -------- ----- --------- -------- ----- --------
Total interest-bearing liabilities $ 16,336 463 2.83% $ 13,722 $ 385 2.81% 19.05%
--------- -------- ----- --------- -------- ----- --------
Net interest spread . . . . . . . . . $1,603 5.54% $1,371 5.21%
--------- -------- ----- --------- -------- ----- --------
Noninterest-bearing deposits 8,950 8,933 .19%
Accrued expenses and other
liabilities . . . . . . . . . . . 83 76 9.21%
Shareholders' equity . . . . . . . . 2,804 2,457 14.12%
--------- -------- ----- --------- -------- ----- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY . . . . . . . $28,173 $25,188 11.85%
--------- -------- ----- --------- -------- ----- --------
Net yield on earning assets . . . . . 6.50% 6.25%
--------- -------- ----- --------- -------- ----- --------
</TABLE>
CFB had no tax-exempt income during 1994 or 1993 and, therefore, had no
adjustment for tax equivalent yields.
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<PAGE> 61
NONINTEREST INCOME
Noninterest income consists of revenues generated from fee-based services
and commissions, and gains or losses recognized from the sale of investment
portfolio securities. Total noninterest income for 1994 decreased $49,000 or
9.07% compared to 1993. Noninterest income for 1993 decreased $8,000 or 1.46%
from 1992. In 1992, CFBO began the practice of pricing consumer installment
loan service charges as part of the interest rate charged and not charging a
service charge. This had the effect of causing interest income on loans to
rise, but loan service charge income to decrease. For the first nine months of
1995, total noninterest income increased $81,000 from the same period in 1994.
NONINTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1994 1993 1992 1994-93 1993-92
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Service charges on deposits . . . . . . . . . . . . . . $ 386 $ 430 $ 434 (10.23%) (.92%)
Net securities gains realized . . . . . . . . . . . . . 0 0 11 .00% 100.00%
Other income . . . . . . . . . . . . . . . . . . . . . 105 110 103 (4.55%) 6.80%
----- ------ ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 491 $ 540 $ 548 (9.07%) (1.46%)
====== ====== ====== ======== ======
</TABLE>
Fee income from service charges on deposit accounts decreased by $44,000
(10.2%) in 1994 and decreased $4,000 or 0.92% in 1993 from 1992. The decrease
in 1994 resulted from a trend to higher quality demand accounts that incurred
fewer nonsufficient funds ("NSF") charges. Emphasis on checking account
services, appropriate pricing for transaction deposit accounts, and fee
collection practices for other deposit services will be important factors to
increasing service charge income for future years. The first nine months of
1995 showed an increase of $60,000 or 21.9% in deposit service charges as
compared to the same period in 1994.
Various recurring noninterest other income items include travelers check
fees, safe deposit box fees, and origination fees on mortgage loans.
NONINTEREST EXPENSE
Noninterest expense for 1994 increased $47,000 or 2.9% following an
increase of $11,000 or 0.7% in 1993. Total salaries and other personnel
expenses decreased $9,000 or 1.1% from 1993 to a total of $805,000 at year-end
1994. In 1993, salaries and benefits increased $50,000 or 6.5%. As of
September 30, 1995, total salary and personnel expense increased $31,000 or
5.1% over the same period in 1994.
Occupancy and equipment expenses decreased by $1,000 or 0.5% in 1994.
These expenses also decreased in 1993 by $22,000 from 1992 or 10.7%. This same
trend continues but has slowed in 1995 with a decrease during the first nine
months of 1995 over 1994 of $8,000 or 3.98%. It is anticipated that these
expenses will increase with the occupancy of the new main office in January,
1996.
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<PAGE> 62
Data processing costs have increased 107.8% for the three years from 1992
to 1994, from $64,000 to $133,000. For the nine months ended September 30,
1995, data processing costs have increased 18.5% or $17,000 over the same
period of the prior year. This is the result of CFB's subsidiary making the
decision in December 1994, to shift proof operation responsibility from CFBO to
its data processor. While data processing costs have increased, related
personnel, supplies and equipment costs have decreased.
NONINTEREST EXPENSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1994 1993 1992 1994-93 1993-92
-------- ------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Salaries and benefits . . . . . . . . . . . . . . . . . $ 805 $ 814 $ 764 (1.11%) (6.54%)
Net occupancy expense . . . . . . . . . . . . . . . . . 183 184 206 (.54%) (10.68%)
FDIC insurance . . . . . . . . . . . . . . . . . . . . . 53 57 53 (7.02%) 7.55%
Data processing . . . . . . . . . . . . . . . . . . . . 133 83 64 60.24% 29.69%
Other . . . . . . . . . . . . . . . . . . . . . . . . . 496 485 525 2.27% (7.62%)
-------- ------ ------ ----- =====
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,670 1,623 $1,612 2.90% 0.68%
======== ====== ====== ===== =====
</TABLE>
All other noninterest expenses, excluding data processing and FDIC
insurance costs increased by $11,000 or 2.27% in 1994, compared to a decrease
of $40,000 or 7.62% in 1993. Other expenses include professional services
expenses, bank travel and entertainment expenses, telephone, supplies, and
postage expense. FDIC insurance premiums decreased in the second half of 1995.
See "--FDIC Insurance Assessments" and "SUPERVISION AND REGULATION."
PROVISION FOR LOAN LOSSES, NET CHARGE-OFFS AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is the expense of providing an allowance or
reserve for anticipated future losses on loans. The amount of the provision
for each period is dependent upon many factors including loan growth, net
charge-offs, changes in the composition of the loan portfolio, delinquencies,
management's assessment of loan portfolio quality, the value of collateral and
general economic factors.
The economic outlook for CFB's markets in the State of Florida continues to
be cautious in the midst of a general rising of the economy overall. Real
estate values are showing a general improvement, and the economic recovery has
had a stabilizing effect on the level of net charge-offs and delinquencies
through September 30, 1995.
The economic recovery has strengthened property values. There is a lower
probability for further write-downs, charge-offs and the transfer of currently
performing loans to a nonaccrual status in the real estate and commercial loan
categories. The loans in the commercial real estate construction and
development portfolios are distributed among office buildings, retail stores,
apartment buildings and health care facilities. CFBO's lending review area
monitors large real estate credits on a continuing basis.
During recent years, CFB has strengthened its review process of the
larger loans in its portfolio and has imposed stricter underwriting standards to
better manage the effect of economic cycles in credit quality. Loan review
procedures, including such techniques as loan grading, are utilized by CFB's
loan review function in order to identify potential problem loans. Loans that
are graded as "impaired," as defined by FASB 114 and FASB 118, are immediately
classified as nonaccrual loans. Automated loan reports are prepared and used in
conjunction with the identification and monitoring of such loans on a monthly
basis. Management's involvement continues throughout the process and includes
participation in the work-out process and recovery activity. These formalized
procedures are monitored internally by a loan reviewer on a continual basis.
Such review procedures are quantified in periodic reports to senior management
and are used in determining whether such loans represent potential losses to
CFB. A determination of a potential loss will result in a charge to the
provision for loan losses, thereby increasing the allowance for loan losses
available for the potential risk. Management monitors the entire loan
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<PAGE> 63
portfolio in an attempt to identify problem loans so that risks in the
portfolio can be timely identified and an appropriate allowance maintained. See
"--Nonperforming Assets."
The following table sets forth information with respect to CFB's loans, net
of unearned income, and the allowance for loan losses for the previous two
years ended December 1994 and 1993 and for September 30, 1995.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Loans, net of unearned income:
Average outstanding during the period . . . . . . . . . . . . . . . . $ 23,858 $ 19,091 $ 14,962
------------ ----------- -----------
Allowance for loan losses:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . 410 387 303
------------ ----------- -----------
Charge-offs:
Commercial, financial and agricultural . . . . . . . . . . . . . . .
Real estate mortgage
Consumer installment . . . . . . . . . . . . . . . . . . . . . . . . . 30 17 14
------------ ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30) (17) (14)
------------- ----------- -----------
Recoveries:
Commercial, financial and agricultural . . . . . . . . . . . . . . . 2 6 32
Real estate mortgage . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer installment . . . . . . . . . . . . . . . . . . . . . . . . . 21 34 45
----------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 40 77
----------- --------- ---------
Net charge-offs (recoveries) . . . . . . . . . . . . . . . . . . . . . 7 (23) (63)
------------ ---------- -----------
Provision charged to income . . . . . . . . . . . . . . . . . . . . . . 0 0 21
------------ ---------- ----------
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . $ 403 $ 410 $ 387
============ ========== ==========
Daily average loans outstanding . . . . . . . . . . . . . . . . . . . . $23,751 $19,092 $14,963
Net charge-offs (recoveries) to average loans outstanding . . . . . . . .03% (.12%) (.42%)
Allowance for loan losses to average loans outstanding . . . . . . . . 1.69% 2.15% 2.59%
Allowance for loan losses to nonperforming loans . . . . . . . . . . . 155.00% 4100.00% 5528.57%
</TABLE>
Management considers changes in the size and character of the loan
portfolio, changes in nonperforming and past due loans, historical loan loss
experience, the existing risk of individual loans, concentrations of loans to
specific borrowers or industries and existing and prospective economic
conditions when determining the adequacy of the loan loss reserve.
As of September 30, 1995, the allowance for loan losses decreased $7,000 or
1.70% since year-end 1994 and represented 1.69% of average outstanding loans.
The allowance for loan losses increased $23,000 in 1994, and at year-end was
at 2.15% of average outstanding loans compared to 2.59% at December 31, 1993.
The allowance as a percentage of nonperforming loans decreased due to an
increase in nonperforming (real estate) loans.
As of December 31, 1994, management determined that approximately 19.42% of
the allowance for loan losses was related to consumer loans, 34.59% was related
to commercial loans, and 45.99% was related to real estate loans.
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<PAGE> 64
ALLOCATION OF LOAN LOSS RESERVE
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1994 % TOTAL 1993 %TOTAL
---- ------- ----- ------
<S> <C> <C> <C> <C>
TOTAL
- -----
Commercial, financial and agricultural . . . . . . . . . . $ 142 34.59% $ 151 39.05%
Real estate . . . . . . . . . . . . . . . . . . . . . . . . 189 45.99% 170 43.95%
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . 79 19.42% 66 17.00%
------ ------- -------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 410 100.00% $ 387 100.00%
====== ======= ======== =======
</TABLE>
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS
Interest on loans is normally accrued from the date an advance is made.
The performance of loans other than real estate and installment loans is
evaluated primarily on the basis of a review of each customer relationship over
a period of time and the judgment of lending officers as to the inability of
borrowers to meet the repayment terms of the loans. If there is reasonable
doubt as to the repayment of a loan in accordance with the agreed terms and the
loan is judged to be impaired with respect to its collectibility, the loan is
placed on a nonaccrual basis pending the sale of any collateral or a
determination as to whether sources of repayment exists. This action may be
taken even though the financial condition of the borrower or the collateral may
be sufficient ultimately to reduce or satisfy the obligation. When a loan is
placed on a nonaccrual basis, all payments are applied to reduce principal to
the extent necessary to eliminate doubt as to the repayment of the loan. Any
interest income on a nonaccrual loan is recognized only on a cash basis after
the principal owed has been repaid. See "-- Nonperforming Assets."
Lending officers are responsible for the administration of each particular
loan. Senior management is informed of the status of delinquent and "watch" or
problem loans on a monthly basis.
Senior management reviews the allowance for loan losses monthly and makes
recommendations to the CFB Board as to loan charge-offs on a quarterly basis.
CFB's policy is generally to discontinue the accrual of interest on loans when
payment of principal and interest is 90 days or more in arrears and the loans
are otherwise considered noncollectible.
As of September 30, 1995 and 1994, loans accounted for on a nonaccrual
basis were approximately $260,000 and $10,000, respectively, or 1.05% and .046%
of total loans net of unearned income. CFBO had no loans 90 days or more past
due and still accruing at September 30, 1995 and 1994.
The allowance for loan losses represents management's assessment of the
risk associated with extending credit and its evaluation of the quality of the
loan portfolio. Management analyzes the loan portfolio to determine the
adequacy of the allowance for loan losses and the appropriate provision
required to maintain a level considered adequate to absorb anticipated loan
losses. In assessing the adequacy of the allowance, management reviews the
size, quality and risk of loans in the portfolio. Management also considers
such factors as CFB's loan loss experience, the amount of past due and
nonperforming loans, specific known risks, the status and amount of
nonperforming assets, underlying collateral values securing loans, current and
anticipated economic condition and other factors which affect the allowance for
potential credit losses.
While it is CFB's policy to charge off in the current period the loans
in which a loss is considered probable, there are additional risks of future
losses which cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy and
other factors beyond management's control, management's judgments as to the
adequacy of the allowance is necessarily approximate and imprecise.
In assessing the adequacy of the allowance, management relies predominantly
on its ongoing review of the loan portfolio, which is undertaken both to
ascertain whether there are probable losses which must be charged off and to
assess the risk characteristics of the portfolio in the aggregate. This review
takes into consideration the judgments of the lending officers, senior
management and those of bank regulatory agencies that review the loan portfolio
as part of CFB's examination process. A specific percentage is allocated to
each loan category, with
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<PAGE> 65
additional amounts being added for individual problem loans considered
to have specific loss potential. While all information available is used by
management to recognize losses in the loan portfolio, there can be no assurances
that future additions to the allowance will not be necessary. CFB's loan
committee reviews the assessments of management in determining the adequacy of
the allowance for loan losses.
CFB's allowance for loan losses is also subject to regulatory examinations
and determinations as to adequacy, which may take into account such factors as
the methodology used to calculate the allowance for loan loss reserves and size
of the loan loss reserve in comparison to a group of peer banks identified by
the regulators. During its routine examinations of depository institutions,
the Florida Department of Banking and the Federal Reserve have, from time to
time, required additions to such institutions' provisions for loan losses and
allowances for loan losses as the regulators' credit evaluations and allowance
for loan loss methodology have differed from those of the management of such
institutions. During the last several years, several large bank holding
companies, located in various portions of the Untied States, have substantially
increased their provisions and reserves for loan losses following regulatory
examinations. Such regulatory examinations have focused on loan quality,
particularly that of real estate loans. CFB attempts to reduce the risks of
real estate lending through maximum loan-to-value requirements as well as
systematic cash flow and initial customer credit history analyses. See
"SUPERVISION AND REGULATION."
Management believes that the $403,000 in allowances at September 30, 1995,
or 1.69% of total average outstanding loans, net of unearned income, was
adequate to absorb known risks in the portfolio. No assurance can be given,
however, that adverse economic circumstances will not result in increased
losses in the loan portfolio.
NONPERFORMING ASSETS
CFB has policies, procedures and underwriting guidelines intended to assist
in maintaining the overall quality of its loan portfolio. CFB monitors its
delinquency levels for any adverse trends. Nonperforming assets consist of
loans on nonaccrual status, loans that have been renegotiated at more favorable
terms than those for similar credits, real estate and other assets acquired in
partial or full satisfaction of loan obligations and loans that are past due 90
days or more. CFB's policy generally is to place a loan on nonaccrual status
when it is contractually past due 90 days or more as to payment of principal or
interest. A loan may be placed on nonaccrual status at an earlier date when
concerns exist as to the ultimate collections of principal or interest. At the
time a loan is placed on nonaccrual status, interest previously accrued, but
not collected, is reversed and charged against current earnings. Loans that
are contractually past due 90 days or more which are well secured or guaranteed
by financially responsible third parties and are in the process of collection
generally are not placed on nonaccrual status.
Nonperforming assets include nonperforming loans and foreclosed real estate
held for sale. Nonperforming loans include loans classified as nonaccrual or
renegotiated. The table of Nonperforming Assets below shows the amount of
interest foregone from loans placed on nonaccrual. For 1994, the amount of
interest foregone was $512 compared to $24,322 for 1993. No interest was
recognized on nonperforming loans while classified as nonperforming.
Nonperforming assets at September 30, 1995, were $260,000, an increase of
$250,000, or 96.2%, from September 30, 1994. At September 30, 1995 and 1994,
all nonperforming assets were nonperforming loans. Nonperforming assets at
December 31, 1994, were $7,000, a decrease of $192,000, or 96.4% from year-end
1993. There were no properties held as other real estate at year-end 1994 or
1993.
During the past few years, the Southeastern region of the country began
experiencing a general improvement in the real estate loan market. In view of
these market conditions, management has closely monitored and will continue to
monitor CFB's real estate and commercial loan portfolio during 1995.
Particular attention will be focused on those credits targeted by the loan
monitoring and review process. Management's continued emphasis is on
maintaining a lower level of nonperforming assets and returning the current
nonperforming assets to an earning status.
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<PAGE> 66
As of September 30, 1995, nonperforming assets were 1.03% of loans
outstanding plus foreclosed real estate held for sale compared to 0.05% for
September 30, 1994. Nonaccrual loans were 1.03% of loans outstanding at
September 30, 1995, compared to the previous level of 0.05% for period ending
September 30, 1994.
At December 31, 1994, nonperforming assets were 0.03% of loans outstanding
plus foreclosed real estate held for sale compared to 1.23% for year-end 1993.
Nonaccrual loans were 0.03% of loans outstanding at year-end 1994 compared to
the previous year-end level of 1.23%
As of September 30, 1995, $258,000 of nonaccrual loans or 99.92% of total
nonaccrual loans were secured. There were no commitments to lend any
additional funds on nonaccrual loans at September 30, 1995.
At December 31, 1994, all nonaccrual loans were unsecured. There were no
commitments to lend any additional funds on nonaccrual loans at December 31,
1994.
Other foreclosed or repossessed assets taken in consideration of loan
amounts due CFB, which consists primarily of repossessed automobiles, are
classified in other assets and as of September 30, 1995, account for less
than .09% of total assets. At year-end 1994, these assets accounted for less
than 0.06% of total assets.
Statement of Financial Accounting Standard No. 114, Accounting by Creditors
for Impairment of a Loan ("FASB No. 114"), is effective for fiscal years
beginning after December 15, 1994. FASB No. 114 addresses the accounting by
creditors for impairment of certain loans and requires that impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or at the loans' observable market price or
the fair value of the collateral if the loan is collateral dependent. On
October 3, 1994, the Financial Accounting Standards Board issued Financial
Accounting Statement No. 118, Accounting by Credits for Impairment of a
Loan-Income Recognition and Disclosure ("FASB No. 118"), which amends FASB No.
114. Under FASB No. 118, creditors are permitted to use existing methods for
recognizing interest income on impaired loans. FASB No. 118 requires that any
entity disclose its policy for recognizing interest income on impaired loans,
including how cash receipts are recorded. The provision of FASB No. 118 are
effective concurrent with the effective date of FASB No. 114. The adoption of
FASB No. 114 has not had a material effect on CFB's financial condition or
results of operations.
The following table summarizes CFB's nonperforming assets for each of the
last two years.
NONPERFORMING ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------------------------------
1995 1994 1994 1993
---------------------------------------------------
<S> <C> <C> <C> <C>
Loans, net unrealized income . . . . . . . . . . . . . . . . $ 24,787 $ 21,710 $ 22,601 $ 16,220
Loans on nonaccrual . . . . . . . . . . . . . . . . . . . . . $ 260 $ 10 $ 7 $ 199
Renegotiated loans . . . . . . . . . . . . . . . . . . . . .
Total nonperforming assets . . . . . . . . . . . . . . . . . 260 10 7 199
Other real estate . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0
Total nonperforming assets . . . . . . . . . . . . . . . . . $ 260 $ 10 $ 7 $ 199
Loans 90 days or more past due and still accruing . . . . . . 0 0 0
Total nonperforming loans as a percentage of total loans . . 1.05% 0.05% 0.03% 1.23%
Total nonperforming assets as a percentage of total loans
and OREO . . . . . . . . . . . . . . . . . . . . . . . . . 1.05% 0.05% 0.03% 1.23%
Loans 90 days past due as a percentage of total loans . . . . .00% .00% .00% .00%
</TABLE>
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<PAGE> 67
DETAILS OF NONACCRUAL LOANS
AS OF DECEMBER 31,
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Principal balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7 $ 199
Interest that would have been recorded under original terms . . . . . . . . . . . 1 24
Interest actually recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
</TABLE>
FDIC INSURANCE ASSESSMENTS
CFB, through its subsidiary, a Bank Insurance Fund ("BIF") member, is
subject to FDIC deposit insurance assessments. During the years ended December
31, 1994, and December 31, 1993, CFB paid $53,000 and $57,000, respectively, in
BIF deposit insurance premiums. See "SUPERVISION & REGULATION--FDIC Insurance
Assessments."
INCOME TAXES
Income tax expense increased $75,000 or 116.5% for 1994. The effective tax
rate as a percentage of pretax income was 33% and 24% in 1994 and 1993,
respectively. These rates are lower than the statutory federal tax rate of 34%
primarily due to the effects of surtax exemptions on lower levels of taxable
income. The first nine months of 1995 have resulted in income tax expense of
$209,000, as compared to $74,000 for the same period in 1994. The effective
tax rate for the first nine months of 1995 was 33% compared to 31% for the
first nine months of 1994.
EFFECTS OF ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement No. 119,
Disclosure About Derivative Financial Instruments and Fair Value of Financial
Statement. The statement requires additional financial disclosure for
derivative financial instruments. The disclosures describe the instruments
purposes and their financial statement presentation. Since the requirements of
the statement are disclosure related in nature, and CFB's exposure to
derivative financial instruments is small, the impact of CFB's financial
statements is not considered to be material.
The Financial Accounting Standards Board issued in December 1991, Statement
No. 107, Disclosures About Fair Value of Financial Instruments. The statement
requires disclosure of the fair values of financial instruments, both assets
and liabilities recognized and not recognized in the statement of financial
position, for which it is practicable to estimate fair value. The statement
also requires disclosure of descriptive information pertinent to estimating the
fair values of the financial instruments. The statement is effective for
financial statements issued for fiscal years ending after December 15, 1995,
for entities with less than $150 million in total assets on the issuance date
of the statement. Since the requirements of the statement are related to
disclosure, these have no material effect on CFB's financial statements and are
not considered to be material.
In April 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting For the Impairment of Long-Lived Assets and For Long-Lived
Assets to be Disposed. This statement requires an impairment loss to be
recognized when the aggregate of estimated future cash inflows to be generated
by an asset are less than the asset's carrying value. The statement is
effective for years beginning after December 15, 1995. Management has not
determined the effect of this statement on future financial statements, but
anticipates it to be immaterial.
In May 1995, the Financial Accounting Standards Board Statement issued
Statement No. 122, Accounting for Mortgage Servicing Rights. This statement
requires that an enterprise engaging in mortgage banking activities recognize
as separate assets rights to service mortgage loans for others. Currently,
CFB does not engage in
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<PAGE> 68
servicing loans for others and therefore, assuming no change in CFB's practice
in this area, this statement will have no effect upon its financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement
123, Accounting for Stock-Based Compensation. This statement requires that
transactions with other than employees in which goods or services are acquired
by issuing equity instruments are accounted for using the value of the
instrument issued. This statement also requires that stock based employee
compensation arrangements be accounted for either by applying the value method
or the intrinsic value method in Opinion 25 of the Accounting Principles Board
(which allows for disclosure only, rather than recognition of certain employee
compensation arrangements). This statement applies to transactions entered
into after October 15, 1995. Management has not determined the effect of this
statement on future financial statements, but anticipates it to be immaterial.
BUSINESS OF CFB
CFB is a Florida corporation and a bank holding company registered under
the BHC Act. CFB provides a wide range of commercial and retail banking
services through its bank subsidiary, CFBO. CFBO is a state bank that is a
member of the Federal Home Loan Bank of Atlanta and conducts a general
commercial banking business from two offices in Ocala, Marion County, Florida,
and surrounding areas, emphasizing the banking needs of individuals and small
to medium-sized business and professional concerns in its primary service area.
See "SUPERVISION AND REGULATION."
CFBO offers the full range of deposit services that are typically available
in most banks and savings associations, including checking accounts, NOW
accounts, savings accounts and other time deposits of various types ranging
from daily money market deposit accounts to longer-term certificates of
deposit. The transaction accounts and time certificates are tailored to CFBO's
principal market area at rates competitive to those offered in the area. All
deposit accounts are insured by the FDIC up to the maximum amount permitted by
law. CFBO solicits these accounts from individuals, businesses, associations,
organizations and governmental authorities.
CFBO offers a range of short- to medium-term commercial, personal and
mortgage loans, with business lending constituting its primary focus.
Commercial loans include both secured and unsecured loans (including loans
partially guaranteed by the Small Business Administration) for working capital
(including inventory and receivables), business expansion (including
acquisition of real estate and improvements) and purchases of equipment and
machinery. Personal (or consumer) loans include secured and unsecured loans
for financing automobiles, home improvements, education and personal
investments. CFBO also offers residential mortgage loans secured by personal
residences.
Other services include safe deposit boxes, travelers checks, direct deposit
of payroll and Social Security checks and automatic draft payments for various
accounts. Although CFB does not own any ATMs, CFBO is a member of the Honor
network of automated teller machines that may be used by bank customers in
major cities throughout Florida and the United States, as well as in various
cities worldwide.
CFB's primary market is Ocala, Florida, and nearby areas of Marion
County CFB's share of IPC deposits in this market was 1.21% at the end of
1994 as compared to the highest market share of 24.5%. As of February 16,
1996, CFB had 22 full-time employees and 1 part-time employees. CFB believes
its employee relations are generally good and all its employees are, subject to
vesting and similar requirements, eligible to participate in CFB's employee
health and welfare plans.
CAPITAL STOCK CHANGES
During the nine months ended September 30, 1995, CFB received new
capital of $811,000. The capital received came from the exercise of 9,600
stock options under an existing employee stock option plan at the exercise
price of $10.05 per common share and the exercise of 71,455 stock warrants at
the warrant exercise price of $10.00. The total number of new shares resulting
from the above transactions was 81,055. The total number of CFB shares
outstanding at September 30, 1995 was 304,480.
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<PAGE> 69
During 1995, options on 9,600 shares were exercised. At September 30,
1995, 18,000 options, all of which are fully vested, remained outstanding. The
owners of these remaining options have agreed to exercise their options prior
to the Effective Time.
CONTINGENCIES AND LEGAL MATTERS
CFB is not a party to, nor is any of its property the subject of, any
material pending legal proceedings, other than ordinary routine proceedings
incidental to the business of banking. CFBO is involved in legal proceedings
primarily involving the recovery of loans previously charged-off or adequately
provided for in the allowance for loan losses. After a review of all
litigation with CFB's legal counsel, CFB's management believes that the
resolution of these matters will not have a material effect on CFB's or CFBO's
financial position, liquidity or results of operations. CFB is involved in a
lawsuit filed by another banking corporation who contends that such
institution, instead of CFB, hold first lien position on certain real property.
The Attorney's Title Insurance Fund, Inc. ("ATIF") is vigorously defending
CFB's claim to first lien position and CFB believes that ATIF will indemnify
and make whole CFB pursuant to the title policy provided by ATIF. Absent any
defense to coverage under the exclusion provisions of the title policy, CFB
believes that ATIF will be obligated to reimburse (up to $240,000, the maximum
amount of insurance coverage under the policy) CFB for losses it incurs as a
result of the litigation together with attorneys' fees and other costs as
provided by terms of the policy.
PROPERTY TRANSACTIONS
During January 1996, CFB closed its College Road branch office, completed
construction on a new main office, demolished the current main office and sold
the lot adjacent to the former main office for a purchase price of $300,000.
The cost of construction of the new main office is approximately $1,300,000.
The cumulative effect of the sale of the adjacent lot at a profit and the
demolition and subsequent accounting write-down of the book value of the former
main office is expected to be a net positive gain to CFB.
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<PAGE> 70
MANAGEMENT OF CFB
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides certain information regarding directors
and officers of CFB. Each of the following persons has been in their current
occupation for the last five years, except where otherwise noted.
<TABLE>
<CAPTION>
AGE AS OF
SEPTEMBER 30,
NAME 1995 POSITIONS
---- ---------------- ---------
<S> <C> <C>
Terry E. Trexler (1) . . 56 Chairman of the CFB and CFBO Boards of Directors
H. Reid Sides, Jr (2). . 45 President and Chief Executive Officer of CFBO;
President and Director of CFB
Richard P. Jones (3) . . 31 Vice President CFBO
Carol S. Reynolds (4). . 47 Vice President and Cashier of CFBO
C. Daniel Hicks (5) . . . 48 Director of CFB and CFBO
Clarence W. Hicks (6) . . 78 Director of CFB and CFBO
Braxton Jones (7) 51 Director of CFB and CFBO
Thomas W. Trexler (8) . . 32 Director of CFB and CFBO
Aleene K. Mackenzie (9) . 74 Director of CFB and CFBO
Marjorie Renfroe (10) . . 61 Director of CFB and CFBO
John C. Wulbern (11) . . 59 Director of CFB and CFBO
- ----------------------------
</TABLE>
(1) Terry E. Trexler is the President and Chairman of Nobility Homes,
Inc., producer of manufactured homes, whose stock is registered under
the 1934 Act. Terry Trexler is the father of Thomas W. Trexler. It
is anticipated that Mr. Trexler will be elected to the CBI Board of
Directors subsequent to the consummation of the Merger.
(2) H. Reid Sides, Jr. has been the President and CEO of Citizens First
Bank of Ocala, and the President of Citizens First Bancshares, Inc.
since July 1991. Prior to his employment with CFBO he was Vice
President and City Executive for Southeast Bank, N.A. in Marion,
Volusia and Sumter Counties.
(3) Richard P. Jones has been employed on a full-time basis by CFBO since
July 1991. Prior to his employment with CFBO he was employed by
Southeast Bank, N.A. in Marion County as a commercial loan officer.
(4) Carol S. Reynolds is employed by CFBO on a full-time basis.
(5) C. Daniel Hicks is a partner in the law firm of Hicks & MacQuarrie,
P.A., Ocala, Florida, and is the son of Clarence W. Hicks.
(6) Clarence W. Hicks is retired. Mr. Hicks is the father of C. Daniel
Hicks, a director of CFB.
(7) Braxton Jones is the owner of H.H.&J. Foods, Inc. in Ocala, Florida
and a partner in J & R Recreational, Inc. in Ocala, Florida.
(8) Thomas W. Trexler is the Executive Vice President, Chief Financial
Officer and Director of Nobility Homes, Inc. in Ocala, Florida, and
is the son of Terry E. Trexler.
(9) Aleene K. Mackenzie is the owner of Kidd Associates Realtors in North
Carolina.
(10) Marjorie Renfroe is a jury clerk for Marion County.
(11) John C. Wulbern has been the President and CEO and a director of
Independent Bankers' Bank of Florida in Orlando, Florida, since
November 1994. Before that he was Chairman of CFBO from January 1,
1992, to November 1, 1994, and prior to that was President of First
Florida Banks, Inc.and a bank consultant
DIRECTOR COMPENSATION
In 1995, each Director of CFBO received $200 per full Board meeting
attended. CFB directors did not receive any compensation for service on the
CFB Board. For information regarding the compensation that Terry Trexler may
receive in the future as a director of CBI, see "THE MERGER--Interests of
Certain Persons in the Merger."
-61-
<PAGE> 71
OWNERSHIP OF CFB COMMON STOCK
As of December 31, 1995, CFB's records indicated the following number
of shares were beneficially owned by (i) all persons who own beneficially 5% or
more of the CFB Common Stock, (ii) each person who is a director or an
executive officer of CFB and (iii) all directors and executive officers as a
group and the following number of shares of CBI Common Stock will be
beneficially owned by such persons as of the effective time of the Merger.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP PERCENT OF
AMOUNT AND NATURE OF CBI COMMON STOCK CLASS TO BE
OF BENEFICIAL OWNERSHIP OWNED AS OF OUTSTANDING AT
NAME OF OF CFB COMMON STOCK PERCENT THE EFFECTIVE TIME THE EFFECTIVE
BENEFICIAL OWNER (NUMBER OF SHARES)(1) OF CLASS (%)(2) (NUMBER OF SHARES) TIME (%)(3)
- ---------------- ------------------ ------------ ------------------ --------
<S> <C> <C> <C> <C>
Clarence W. Hicks (4) 16,578 5.14 21,848 *
C. Daniel Hicks (5) 12,580 3.90 16,579 *
V. Braxton Jones (6) 21,223 6.58 27,970 *
Aleene MacKenzie 6,480 2.01 8,540 *
Marjorie Renfroe (7) 8,406 2.61 11,078 *
H. Reid Sides, Jr (8) 22,674 7.03 29,882 *
Tom Trexler 7,717 2.39 10,170 *
Terry E. Trexler (9) 50,000 15.50 65,895 1.47
John C. Wulbern (10) 29,600 9.18 39,010 *
Richard P. Jones (11) 2,120 * 2,794 *
Carol S. Reynolds (12) 1,020 * 1,344 *
Robert L. Feldman (13) 21,200 6.57 27,940 *
Hilmer C. Schmidt (14) 21,672 6.72 28,562 *
*
Directors and executive
officers as a group
(11 persons) 221,270 68.62 291,612 6.52
</TABLE>
____________________________________________________________
* Less than 1%.
(1) Information relating to beneficial ownership of Common Stock by
directors is based upon information furnished by each person using
"beneficial ownership" concepts set forth in rules of the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Under such rules, a person is deemed to
be a "beneficial owner" of a security if that person has or shares
"voting power," which includes the power to vote or direct the voting
of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. The person
is also deemed to be a beneficial owner of any security of which that
person has a right to acquire beneficial ownership within 60 days.
Under such rules, more than one person may be deemed to be a
beneficial owner of the same securities, and a person may be deemed to
be a beneficial owner of securities as to which he or she may disclaim
any beneficial ownership. Accordingly, nominees are named as
beneficial owners of shares as to which they may disclaim any
beneficial interest. Except as indicated in other notes to this table
describing special relationships with other persons and specifying
shared voting or investment power, directors possess sole voting and
investment power with respect to all shares of Common Stock set forth
opposite their names.
(2) Based on 322,480 shares of CFB Common Stock which includes shares
outstanding as of December 31, 1995, and all shares subject to options
on December 31, 1995.
(3) Based on 4,472,643 shares of CBI Common Stock outstanding as of the
Effective Time of the Merger.
-62-
<PAGE> 72
(4) Includes 7,600 shares held in the Clarence W. Hicks Trust and 8,978
shares are in the name of Arletta K. Hicks, Mr. Hick's wife. Mr.
Hicks' address is 707 S.E. 24th Terrace, Ocala, Florida 34471.
(5) Includes 110 shares owned by Suzanne W. Hicks, Mr. Hicks' wife and 100
shares owned by Barbara Hicks Hopkins, Mr. Hicks' sister.
(6) Mr. Jones' address is 1243 S.E. 9th Avenue, Ocala, Florida 34471.
(7) Includes 8,136 shares owned by Samuel Renfroe, Ms. Renfroe's husband.
(8) Includes options to purchase 12,000 shares of CFB Common Stock that
will be exercised prior to the Effective Time. Mr. Sides' address is
1618 S.E. 29th Terrace, Ocala, Florida 34471.
(9) Mr. Trexler's address is c/o Nobility Homes, Inc., 3741 S.W. Seventh
St., Ocala, Florida 34474
(10) Includes 29,600 shares jointly owned by John C. and Nancy C. Wulbern,
10,000 shares owned by Elizabeth Fischer, Mr. Wulbern's mother, 275
shares owned by Nancy C. Wulbern, his wife, and 400 shares owned by
John Cooper Wulbern, his son. Mr. Wulbern's address is 1720 S.E. 11th
Street, Ocala, Florida 34471.
(11) Includes options to purchase 2,000 shares of CFB Common Stock
that will be exercised prior to the Effective Time. Includes 2,000
shares owned by J&R Recreational Development, Inc. of which Mr. Jones
is a 50% owner.
(12) Includes options to purchase 1,000 shares of CFB Common Stock
that will be exercised prior to the Effective Time.
(13) Mr. Feldman's address is 13301 S. Hwy. 475, Ocala, Florida
34480.
(14) Mr. Schmidt's address is Route 6, P.O. Box 6491H, Brenham,
Texas 77833.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF CFB
CFB follows a policy of offering mortgage loans on personal residences
and personal consumer loans to its directors and employees. The rate has
generally been at or above market rate. These loans are made in the ordinary
course of business on substantially the same terms and collateral, and
generally do not involve more than the normal risks of collectibility or
present unfavorable features. Other loans are made to officers, directors, and
employees on the same terms as made to the general public.
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<PAGE> 73
CBI'S MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is designed to provide a
better understanding of various factors related to the financial condition and
results of operations of CBI during the past three years, and the six-month
periods ended September 30, 1994 and 1995. This discussion and analysis is
intended to supplement and highlight information contained in the accompanying
consolidated financial statements and the selected financial data presented
elsewhere in this Proxy Statement/Prospectus.
SUMMARY
Net income for 1994 was $6,005,000, a 4.8% increase from CBI's net
income of $5,728,000 in 1993. Net income for 1993 was 16.1% higher than 1992
net income of $4,933,000. Net income per common share for 1994, 1993 and 1992
was $1.48, $1.41 and $1.22, respectively. The improvements in net income per
common share for 1994 and 1993 were approximately 4.96% higher and 15.6%
higher, respectively.
The increase in 1994 net income resulted primarily from improved asset
quality, historically high net interest margins, good overhead control and
strong investment yields.
Net income for the nine months ended September 30, 1995 was $4,768,000, a
$306,000 (6.9%) increase over the same period ended September 30, 1994.
Earnings were aided by continued strong asset quality, growth in net earning
assets and good overhead control. Return on average assets was 1.42% and
return on average shareholders' equity was 15.85% for the nine months in 1995,
compared to the prior years' results of 1.43% and 16.24%, respectively, for the
comparative period.
Total assets at September 30, 1995 were $459,891,000, a 6.2% increase from
December 31, 1994. For the same nine month period, deposits increased
$15,655,000 or 4.0%. Although total deposits increased, the composition of
deposit type changed. As the Federal Reserve increased interest rates 300
basis points from early 1994 through the first part of 1995, interest-bearing
transaction deposits and savings deposits decreased while time deposits
increased by a greater amount.
Through September 30, 1995, net interest income was $12,994,000, 2% higher
than the $12,775,000 for the nine months ended September 30, 1994. The
increases in yields on earning assets, coupled with increased
noninterest-bearing deposits was more than offset by the increase in average
interests costs on deposits. This resulted in a decrease in the net
income/yield on average earning assets from 4.64% at December 31, 1994 to 4.38%
September 30, 1995.
Average shareholders' equity as a percentage of total assets is one measure
used to determine capital strength. The ratio of average shareholders' equity
to average assets at September 30, 1995 was 8.93%, an improvement from 8.32% at
December 31, 1994 and 8.79% at September 30, 1994.
RECENT DEVELOPMENTS
CBI's net income for 1995 totaled $6,570,000 or $1.62 per share compared
with $6,005,000 or $1.48 per share in 1994 and $5,728,000 or $1.41 per share in
1993. Earnings were aided by continued strong asset quality, good overhead
control and reduced FDIC insurance premiums. Return on average assets was
1.44% and return on average shareholders' equity was 15.26% for 1995, compared
to the prior year's results of 1.42% and 17.08%, respectively, and 1993's
results of 1.47% and 18.52%, respectively.
Net interest income, on a fully diluted tax equivalent basis (TEB), totaled
$18,976,000 for 1995, an increase of $416,000 or 2.24% from CBI's performance
in 1994, the spread earned on increased deposits decreased during 1995. The
average cost of interest-bearing liabilities increased from 3.55% during 1994
to 4.41% during 1995, while the average yield on earning assets increased from
7.75% during 1994 to 8.16% during 1995. The increases in average interest
costs and yields on earning assets, coupled with increased noninterest-bearing
deposits and shareholders' equity resulted in a decrease in the net interest
income/yield on average earning assets from 4.64% in 1994 to 4.36% during 1995.
CBI's average earning assets for 1995 increased $34,925,000 or 8.72%
compared to the prior year. Average loan balances increased $25,965,000 or
13.89% from the prior year to $212,933,000, while average investment securities
increased $4,145,000 or 2.00% to $211,570,000.
-64-
<PAGE> 74
For the year ended December 31, 1995, average loans represented 48.92%
of average earning assets compared to 46.70% for 1994. While loan yields
increased 75 basis points, investment security yields increased only 2 basis
points, resulting in a yield increase of 41 basis points from 7.75% in 1994 to
8.16%. During 1995, CNBL changed its prime rate three times beginning and
ending at 8.5%.
Like earning asset yields, the interest rates paid on interest-bearing
liabilities increased. The 86 basis point climb from 3.55% at December 31,
1994, to 4.41% at year-end 1995 was primarily a result of a shift into higher
rate time deposits from interest-bearing demand and savings accounts and
additional net growth in time deposits. The average balance for
interest-bearing liabilities increased $24,324,000 or 6.94% to $375,005,000 in
1995 compared to 1994.
CBI's net charge-offs for 1995 declined $241,000 or 251.04% to
$(145,000) reflecting greater recoveries than charge-offs in the latest period.
The significant decline in net charge-offs and delinquencies in 1995 resulted
in a $345,000 or 57.50% decline in the 1995 provision for loan losses when
compared to 1994. The net recoveries were primarily attributed to one real
estate loan previously written down.
The allowance for loan losses was $3,395,000 at December 31, 1995,
$401,000 higher than one year earlier. The ratio of the allowance for loan
losses to total loans outstanding (net of unearned income) was 1.50% at
December 31, 1995. The ratio was 1.51% at December 31, 1994. The allowance
for loan losses as a percentage of nonaccrual loans was 423.32% at December 31,
1995, compared to 595.23% at December 31, 1994.
CBI's securities transactions resulted in losses of $74,000 for the
year ended December 31, 1995, compared to losses of $168,000 in 1994, or a
total change of $94,000. Securities gains in 1993 were $445,000. In December
1995, CBI utilized the FASB guidance outlined in "Special Report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
Securities" and reclassified all its securities in held-to-maturity to
available-for-sale. As of the transfer date, the amortized cost was
$77,481,000 and market value was $80,807,000. Accordingly, there was an
unrealized gross gain of $3,326,000 at transfer, which is included net of
$1,252,000 tax as a separate component of shareholder's equity.
CBI's capital increased by $12,481,000 at December 31, 1995 compared
to year-end 1994. Net income of $6,570,000 less dividends declared of
$1,781,000 comprises part of increase. Capital also increased $7,647,000 due
to the adjustment for unrealized (losses)/gains on certain securities required
by Statement No. 115 of the Financial Accounting Standards Board, Accounting
for Certain Investments in Debt and Equity Securities. See Notes 1 and 2 to
CBI's consolidated financial statements
CBI's ratio of shareholders' equity to period end assets was 9.67%
after the adjustment for FASB No. 115 and 8.99% excluding assets and capital
attributed to FASB No. 115. The 8.99% at December 31, 1995 (net of FASB No.
115) compares to the year end 1994 ratio of 8.66% and the year end 1993 ratio
of 8.95%.
CBI's shareholder equity (book value) per common share outstanding was
$10.51 per share with the adjustment for FASB No. 115 and $11.45 net of FASB
No. 115 adjustment at December 31, 1995. Again, this compares to the book
value per share at year-end 1994 of $9.34 and $8.39 per share at December 31,
1993.
Liquidity, as measured in the form of cash and cash equivalents,
totaled $21,887,000 at December 31, 1995, as compared to $14,322,000 at
December 31, 1994. Cash and cash equivalents vary with seasonal deposit
movements and are generally higher in the winter than in the summer, and vary
with the level of principal repayments occurring in CBI's investment securities
portfolio and loan portfolio.
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<PAGE> 75
FINANCIAL CONDITION
Earning Assets
Average earning assets in 1994 increased $31,498,000 or 8.5 % compared
to prior year as a result of increased loans and investment securities.
Average loan balances have increased $16,391,000 or 9.6 % from the prior year
to $186,968,000, while average investment securities increased $20,721,000 or
11.1 % to $207,425,000. The earning asset mix changed slightly during 1994
with loans at 46.70 %, investment securities at 51.81 %, and other earning
assets at 1.49 %. In 1993, loans were 46.25 %, investment securities were
50.62 %, and the other earning assets were 3.13 %. From 1993 to 1994, loan
yields increased 36 basis points, investment security yields declined 57 basis
points, resulting in an overall yield decline of 3 basis points from 7.78 % in
1993 to 7.75 % in 1994. During 1994, CNBL changed its prime rate five times
from 6 % to 8.5 %. CNBL did not change its prime rate during 1993. Through
September 30, 1995, there were two changes in CNBL's prime rate ending with a
rate at that date of 8.5%. CNBL monitors the mix of earning assets in order to
anticipate interest rate movements and take advantage of better interest rate
spreads facilitating optimization of return on earning assets.
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<PAGE> 76
CONDENSED INCOME STATEMENT
AS A PERCENT OF AVERAGE ASSETS
(Tax Equivalent Basis)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net interest income. . . . . . . . . . . . . . . . . . . . . . 4.39% 4.33% 4.25%
Provision for loan losses. . . . . . . . . . . . . . . . . . . (.14) (.28) (.39)
Noninterest income:
Investment securities gains (losses) . . . . . . . . . . . . (.04) .11 .31
Service charges on deposit accounts . . . . . . . . . . . . .26 .30 .31
Other income . . . . . . . . . . . . . . . . . . . . . . . . .26 .25 .24
Noninterest expenses . . . . . . . . . . . . . . . . . . . . . (2.48) (2.53) (2.57)
------ ------ ------
Income before income taxes . . . . . . . . . . . . . . . . . . 2.25 2.18 2.15
Provision for income taxes, including tax
equivalent adjustment . . . . . . . . . . . . . . . . . . (.83) (.78) (.79)
Cumulative effect of change in method of
accounting for income taxes. . . . . . . . . . . . . . . . . -- .07 --
------ ------ ------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 1.42% 1.47% 1.36%
====== ====== ======
</TABLE>
CHANGES IN AVERAGE EARNING ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
------------------- -------------------
1994 vs. 1993 1993 vs. 1992
------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Investment securities:
Taxable . . . . . . . . . . . . . . . . . $ 8,899 5.8% $ 3,447 2.3%
Nontaxable . . . . . . . . . . . . . . . . 11,822 36.4 4,680 16.8
Federal funds sold and other
short-term investments . . . . . . . . . . (5,614) (48.5) 2,087 22.0
Loans, net . . . . . . . . . . . . . . . . . 16,391 9.6 16,230 10.5
------ ------ ------ -----
TOTAL . . . . . . . . . . . . . . . . . . $31,498 8.5% $26,444 7.7%
====== ====== ====== =====
</TABLE>
LOAN PORTFOLIO
CBI makes substantially all of its loans to customers located within
the three counties of Lake, Sumter and Marion. It has no foreign loans or
highly leveraged transaction (HLT) loans.
The increases in CBI's loan balances in 1994 are attributable to good
growth in residential and commercial real estate loans. CBI also sold
$2,018,000 in fixed rate mortgage loans in the secondary market in 1994.
At December 31, 1994, CBI's portfolio of residential mortgage loans
amounted to $105,975,000 or 53.3 % of total loans. Loans secured by commercial
real estate totaled $59,684,000 or 30.0 % of total loans. Most of the
commercial real estate loans were made to local businesses and professionals
secured by owner-occupied properties. Loans and commitments for 1-4 family
residential properties and commercial real estate are generally secured with
first mortgages, with the loan to fair market value of the property not
exceeding 80 % on the date the loan is made. Loans secured by first mortgages
composed 99.2% of all of CBI loans that are secured by real estate.
Between December 31, 1993, and December 31, 1994, residential real
estate mortgage loans increased $14,010,000 or 15.2 % and commercial real
estate mortgage loans increased $4,844,000 or 8.8 %.
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<PAGE> 77
Installment loans at December 31, 1994 showed a slight increase of
$220,000 from year end 1993, excluding installment real estate loans. CBI's
home equity line portfolio and residential adjustable rate mortgage loans
("ARMs") (included in real estate loans above) increased at year end by
$1,132,000 and $640,000, respectively.
CBI believes that the local demand for residential real estate
mortgages and service industry related loan demand will continue to be strong.
This assumption is based on the continued migration of retirees moving to this
market area to live.
CBI's market is primarily a residential area with relatively little
commercial activity other than professional, retail and service businesses
serving local residents. Therefore, real estate mortgage lending (particularly
residential properties) is expected to remain an important segment of CBI's
lending activities. Exposure to market interest rate volatility, with respect
to mortgage loans, is managed by attempting to match maturities and repricing
opportunities for assets against liabilities, when possible. At December 31,
1994, approximately $73,673,000 or 44.6% of CBI's total real estate loans were
15- to 30-year residential ARMs that reprice based upon the one-year constant
maturity United States Treasury Index plus a margin. Generally, the ARMs'
interest rate adjustments are limited to 2% per annum and 6% over the life of
the loan. Such ARMs may be originated at rates greater than the index rate,
but below the total of the index rate and the margin for an initial period
ending on the first adjustment date. All such loans are generally made to
borrowers upon terms and conditions consistent, except for amount in certain
cases, that would make such loans eligible for resale, after seasoning, under
Federal National Mortgage Association ("FNMA") or Federal Home Loan Mortgage
Corporation (FHLMC) guidelines. ARM borrowers are qualified based upon the
initial ARM loan interest rate plus 125 basis points and upon various debt
service ratios of the borrower, including a total debt service ratio of not
more than 36% of total income.
Commercial lending activities are directed principally towards
businesses whose demand for funds are within CBI's lending limits, such as
small-to medium-sized professional firms, retail and wholesale outlets, and
light industrial and manufacturing concerns. Approximately 93.6% of such loans
or $18,451,000 are secured by real estate used by such businesses, although
certain lines are unsecured.
CBI makes a variety of consumer loans, including installment loans,
loans for automobiles, boats, home improvements and other personal, family and
household purposes, and indirect loans through dealers to finance automobiles.
Most consumer loans are secured. CBI has engaged in indirect lending to
automobile purchasers through dealers. CBI's indirect automobile lending risks
have been reduced through screening and monitoring of a small number of dealers
with whom CBI does business. CNBL also had approximately $1,438,000 of
unsecured credit card loans at December 31, 1994. Indirect loans were
$7,440,000, $6,436,000 and $8,386,000 at December 31, 1993 and 1994, and
September 30, 1995, respectively.
Second mortgage loans and home equity lines also are extended by CBI.
No negative amortization loans or lines are offered at the present time. Terms
of second mortgage loans include fixed rates for up to 10 years on smaller
loans of $25,000 or less. Such loans are sometimes made for larger amounts,
with a fixed rate, but with a balloon payment at a maturity not to exceed five
years. CBI offers variable-rate second mortgage loans with terms of up to 15
years. Combined first and second mortgage loan-to-value ratios for these loans
generally do not exceed 80% of appraised value. Home equity lines are offered
on a variable rate basis only and the maximum loan-to-value ratio for such
loans is normally 80% of the appraised value when the loan is extended.
CBI has commitments to make loans (excluding unused home equity and
credit card lines) of $28,728,000 at December 31, 1994, as compared to
$23,701,000 at December 31, 1993.
CBI attempts to reduce its exposure to the risk of the local real
estate market by making commercial real estate loans primarily on
owner-occupied properties. CBI presently has 30% of its total loans in
commercial real estate. The remainder of the real estate loan portfolio is
residential mortgages to individuals, and home equity loans, which CBI
considers less susceptible to adverse effects from a downturn in the real
estate market, especially given the area's large percentage of retired persons.
CBI's historical charge-off rates for real estate loans have been relatively
low, with net charge-offs of 0.02% for the year ended December 31, 1994, as
compared to 0.07% for the year ended December 31, 1993.
Risks relating to commercial lending that are inherent to CBI's
particular loan market are diversified and include, but are not limited to, the
seasonal climate and its impact on the region's agricultural production.
Although CBI's market area has reduced its dependence on the agricultural
industry in past years, the area and various business sectors continue to
depend on the agrarian economy. The health of the region's industrial
production sector, including aluminum extrusion production, food products
production and concrete products manufacturing, is to a large degree dependent
on the ability of these industries to receive raw materials and the
availability of a sufficient labor market. CBI is not aware of any shortages
involving such raw materials or labor. Risks associated with consumer loans
are a function of the local economy in general. The default rate on consumer
loans is related to the local economy's ability to generate jobs to gainfully
employ the workforce that lives in CBI's market area. Risks associated with
residential lending are similar to those associated with consumer lending and
also include negative changes in the value of the property which secures
residential loans. Such negative changes could result from environmental
pollution, natural disasters and a decrease in the general demand for real
estate in CBI's market area.
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<PAGE> 78
The table set forth below shows the classifications of loans by major
category at the indicated dates.
<TABLE>
<CAPTION>
LOAN PORTFOLIO
YEARS ENDED DECEMBER 31,
(Dollars in Thousands)
1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ -------- ------ -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural . . . . . . . . $ 13,457 6.73% $ 13,153 7.31% $ 14,132 8.73% $ 18,630 12.62% $ 17,118 13.86%
Real estate mortgage: 166,039 83.03 146,152 81.26 127,194 78.62 110,182 74.63 91,237 73.86
Consumers installments . . . . 20,480 10.24 20,561 11.43 20,461 12.65 18,822 12.75 15,175 12.28
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total . . . . . . . . . . . . . 199,976 100.00% 179,866 100.00% 161,787 100.00% 147,634 100.00% 123,530 100.00%
Less:
Unearned income . . . . . . . (1,024) (1,266) (1,397) (1,411) (960)
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . (198,952) 178,600 160,390 146,223 127,570
======== ======== ======== ======== ========
Less:
Allowance for loan losses . . (2,994) (2,490) (1,687) (1,671) (1,412)
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . $195,958 $176,110 $158,703 $144,552 $121,158
======== ======== ======== ======== ========
</TABLE>
-69-
<PAGE> 79
SELECTED LOAN MATURITY AND INTEREST RATE SENSITIVITY
AS OF DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
RATE STRUCTURE FOR LOANS
MATURING OVER ONE YEAR
-----------------------------
ONE YEAR ONE YEAR OVER PREDETERMINED FLOATING OR
OR TO FIVE FIVE INTEREST ADJUSTABLE
LESS YEARS YEARS RATE RATE TOTAL
---- ----- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural . . . $ 10,392 $ 3,029 $ 26 $ 13,445 $ 2 $ 13,447
Real estate . . . . . . . . 130,589 23,379 11,319 165,264 23 165,287
Consumer . . . . . . . . . 7,786 11,545 887 20,168 50 20,218
---------- ---------- ---------- ---------- --- --------
TOTAL . . . . . . . . . . . $ 148,767 $ 37,953 $ 12,232 $ 198,877 $75 $198,952
========== ========== ========== ========== === ========
</TABLE>
INVESTMENT PORTFOLIO
The composition of CBI's investment securities portfolio reflects CBI's
investment strategy of obtaining portfolio yields consistent with risk and
liquidity considerations. The primary objectives of CBI's investment strategy
are to maintain an appropriate level of liquidity and provide a tool to assist
in controlling CBI's interest rate position while at the same time producing
adequate levels of interest income. For securities classified as investment
securities, management intends to maintain both a "Held to Maturity" portfolio
and an "Available for Sale" portfolio. The mix between the two portfolios
provides flexibility in managing CBI's investment portfolio. Management of the
maturity of the portfolio is necessary to provide liquidity and control
interest rate risk.
Effective December 31, 1993, CBI adopted the investment categorization and
carrying value rules as required by Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 115 (FASB 115), Accounting for
Certain Investments in Debt and Equity Securities. Under FASB 115, CBI
classifies its investment securities as either available-for-sale or
held-to-maturity or trading. Held-to-maturity investments are carried at
amortized cost. Securities available-for-sale and trading are carried at
market value. For December 31, 1992, investment debt securities were carried
at amortized cost.
CBI has no securities classified as trading and currently has no plans to
hold or acquire any securities for trading. The majority of securities at
December 31, 1994, classified as held-to-maturity (71.76%) are obligations of
state and political subdivisions and are held for their after-tax yield. Other
securities are classified as held-to-maturity based on an individual analysis.
All other securities are classified as available-for-sale and represent 66.02%
of the total carrying value.
Average outstanding investment securities during 1994 increased by
$20,721,000 from $186,704,000 to $207,425,000. The increase in average
outstanding investment securities resulted from an increase in deposits. The
investment of these proceeds into investment securities was done after
considering future projected liquidity needs and then current economic
conditions. U.S. Treasury and Government agency securities with maturities from
two to 10 years were emphasized with the intent to hold these securities as
available-for-sale. Also, CBI continued to reduce its position in
mortgage-backed securities due to perceived market price sensitivity. CBI
primarily increased its held-to-maturity securities in tax-exempt securities to
maximize long-term tax-equivalent yields. The changes made to the investment
securities portfolio decreased the average yield from 8.23% to 7.66%. This was
primarily due to maturities, calls and prepayments of high yield securities
coupled with lower yield reinvestment opportunities.
The above-described transactions changed the composition of the investment
securities portfolio during 1994. At December 31, 1994, 48.0% of the total
carrying value of the $206,547,000 of the investment portfolio is comprised of
U.S. Treasury and Government agency securities. This compares to 45.4% at
December 31, 1993, and 38.0% at December 31, 1992. In addition, 22.2% of total
investment securities are represented by mortgage-backed securities compared to
26.7% at December 31, 1993, and 35.9% at December 31, 1992.
-70-
<PAGE> 80
The mortgage-backed securities consist of pass-through and collateralized
mortgage obligations issued by governmental agencies and sponsored
corporations, primarily the Governmental National Mortgage Association ("GNMA")
and FNMA. Approximately 20% of the mortgage-backed portfolio consisted of
variable rate securities with the balance invested in fixed rate securities.
The primary risk associated with these securities is an interest rate risk;
that is, how a change in interest rates influences the prepayments of the
underlying mortgage obligations thereby affecting the actual yield to maturity
and maturity of the mortgage-backed security. Generally, it is CBI's
investment policy that mortgage-backed securities shall have a maximum average
expected maturity of 15 years. A decreasing trend in interest rates would
increase the market value and shorten the expected maturity of the portfolio
due to the anticipated increase in prepayments of the underlying mortgage
obligations. Conversely, an increasing trend in interest rates would have the
opposite trend to decrease the market value and lengthen the expected maturity
of the portfolio.
The unrealized net depreciation of the securities portfolio at December 31,
1994, and 1993, was $8,666,000 and $8,804,000, respectively. This represents
4.1% of amortized cost and 4.2% of carrying value as compared to the unrealized
net appreciation of 4.3% at December 31, 1993. For investment securities
available-for-sale, the largest segment of unrealized loss at December 31,
1994, is represented by U.S. Treasury and Government agency securities ($3.8
million or 1.8% of the carrying value of the entire portfolio). For investment
securities held-to-maturity, the largest segment of unrealized loss at December
31, 1994, is represented by obligations of state and political subdivisions
($1.9 million or 0.9% of the carrying value of the entire portfolio).
The following table sets forth the carrying value of the investment
securities portfolio at the end of each of the previous two years.
INVESTMENT PORTFOLIO
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
U.S. Treasury securities. . . . . . $ 37,199 $ 44,390 $ 38,811
U.S. Agency obligations . . . . . . 61,974 $ 49,328 30,697
Mortgage-backed securities. . . . . 45,779 $ 55,096 65,559
Other securities. . . . . . . . . . 61,595 $ 57,713 47,769
-------- -------- --------
Total . . . . . . . . . . . . . . . $206,547 $206,527 $182,836
======== ======== ========
</TABLE>
The maturities, amortized cost, market values,
and weighted-average yields of the investment securities portfolio at the end
of 1994 are presented in the following table using primarily the stated
maturities excluding the effects of prepayments. The yield data is determined
using the amortized cost of the securities. As of December 31, 1994, no issuer
of investment securities, other than the U.S. Government and U.S. Government
agencies and sponsored corporations, held by CBI represented 10% or more of CBI
shareholders' equity.
-71-
<PAGE> 81
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
(Dollar in thousands)
<TABLE>
<CAPTION>
U.S. Treasury Mortgage-Backed Securities Mortgage-Backed Securities
and U.S. Government Agencies (Fixed) (Adjustable)
------------------------------- ------------------------------- -----------------------------
Carrying Market Weighted Carrying Market Weighted Carrying Market Weighted
DECEMBER 31, 1994 Value Value Yield Value Value Yield Value Value Yield
------------------------------- ------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity
Within one year................... $ 3,028 $ 3,028 8.21% $11,384 $11,384 8.36% $ 473 $ 487 7.30%
One to five years................. 62,216 61,868 6.44% 2,824 2,824 7.75% 3,454 3,386 6.62%
Five to ten years ................ 31,188 31,036 6.88% 22,410 22,338 6.64% 1,630 1,576 6.90%
Over ten years and
equity securities .............. 2,741 2,675 7.74% 0 0 0.00% 3,604 3,609 5.27%
------- ------- ---- ------- ------- ---- ------- ------- ----
TOTAL VALUE .................. $99,173 $98,607 6.46% $36,618 $36,546 7.23% $ 9,161 $ 9,058 6.13%
======= ======= ======= ======= ======= =======
December 31, 1993
TOTAL VALUE .................. $93,717 $93,718 6.68% $43,960 $43,966 7.48% $11,013 $11,413 5.70%
======= ======= ======= ======= ======= =======
</TABLE>
(1) On a tax-equivalent basis
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
---------------------------------------------- -------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
DECEMBER 31, 1994 Cost Gains Losses Value Cost Gains Losses Value
---------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government Agencies..... $ 91,685 $ 265 $ 4,015 $ 87,935 $11,238 $ 0 $ 566 $10,672
Mortgage-backed
securities
Fixed................... 36,448 105 1,830 34,723 1,893 0 70 1,823
Adjustable.............. 3,374 0 441 2,933 6,230 19 124 6,125
Obligations of state
and political
subdivisions ........... 5,863 80 47 5,896 50,365 795 2,721 48,439
Other securities ......... 4,990 31 147 4,874 460 0 0 460
-------- ---- ------- -------- ------- ---- ------ -------
TOTAL ................ $142,360 $481 $ 6,480 $136,361 $70,186 $814 $3,481 $67,519
======== ==== ======= ======== ======= ==== ====== =======
<CAPTION>
Grand Totals
--------------------------------------
Total Total Average
Carrying Market Years to
DECEMBER 31, 1994 Value Value Maturity
--------------------------------------
<S> <C> <C> <C>
U.S. Treasury and U.S.
Government Agencies.... $ 99,173 $ 98,607 4.83
Mortgage-backed
securities
Fixed.................. 36,618 36,546 3.91
Adjustable............. 9,161 9,058 8.43
Obligations of state
and political
subdivisions .......... 56,261 54,335 10.36
Other securities ........ 5,334 5,334 2.44
-------- --------
TOTAL ............... $206,547 $203,880 6.23
======== ========
</TABLE>
-72-
<PAGE> 82
<TABLE>
<CAPTION>
Obligations of States and
Political Subdivisions Other Total
-------------------------------- --------------------------------- ---------------------------------
Carrying Market Weighted Carrying Market Weighted Carrying Market Weighted
DECEMBER 31, 1994 Value Value Yield(1) Value Value Yield Value Value Yield
-------------------------------- --------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity . . . . . . . . $ 2,228 $ 2,250 8.76% $ 0 $ 0 .00% $ 17,113 $ 17,149 8.32%
Within one year . . . 3,578 3,647 7.36% 4,874 4,874 7.15% 76,946 76,599 7.13%
One to five years . . 8,200 8,260 6.18% 0 0 .00% 63,428 63,210 6.66%
Five to ten years . . 42,255 40,178 6.24% 460 460 .00% 49,060 46,922 5.27%
------- ------- ------ ------ -------- --------
Over ten years
and equity
securities . . . . . $56,261 $54,335 6.40% $5,334 $5,334 7.15% $206,547 $203,880 7.01%
======= ======= ====== ====== ======== ========
TOTAL VALUE
December 31, 1993
TOTAL VALUE . . . $49,968 $52,836 6.75% $7,779 $7,779 7.49% $206,527 $209,712 6.92%
======= ======= ====== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
------------------------------------------------- -------------------------------------------------
Gross Gross Market Amortized Gross Gross Market
Amortized Unrealized Unrealized Value Cost Unrealized Unrealized Value
December 31, 1993 Cost Gains Losses Gains Losses
------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. . . . $ 88,228 $3,538 $ 68 $ 91,698 $ 2,019 $ 3 $ 2 $ 2,020
Government Agencies
Mortgage-backed
securities
Fixed . . . . . . . . . 41,896 1,401 45 43,252 708 6 0 714
Adjustable . . . . . . . 4,972 1 11 4,962 6,141 310 0 6,451
Obligations of state
and political
subdivisions . . . . . . 6,348 493 0 6,841 43,127 2,925 57 45,995
Other securities . . . . . 6,975 310 0 7,285 494 0 0 494
-------- ------ ---- -------- ------- ------ ------ -------
TOTAL $148,419 $5,743 $124 $154,038 $52,489 $3,244 $ 59 $55,674
======== ====== ==== ======== ======= ====== ====== =======
<CAPTION>
Grand Totals
-----------------------------------
Total Total Average
Carrying Market Years to
December 31, 1993 Value Value Maturity
-----------------------------------
<S> <C> <C> <C>
U.S. Treasury and U.S. . . . $ 93,717 $ 93,718 4.14
Government Agencies
Mortgage-backed
securities
Fixed . . . . . . . . . 43,960 43,966 5.73
Adjustable . . . . . . . 11,103 11,413 7.97
Obligations of state
and political
subdivisions . . . . . . 49,968 52,836 10.25
Other securities . . . . . 7,779 7,779 3.13
-------- --------
TOTAL . . . . . . . . $206,527 $209,712 6.12
======== ========
</TABLE>
<TABLE>
<CAPTION>
Total Investments
-----------------
Gross Gross Average
Carrying Unrealized Unrealized Market Years to
December 31, 1992 Value Gains Losses Value Maturity
----- ----- ------ ----- --------
<S> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government Agencies . . . $ 69,508 $ 3,344 $ 16 $ 72,836 4.31
Mortgage-backed securities
Fixed. . . . . . . . . . . 58,274 1,673 257 59,690 5.20
Adjustable . . . . . . . . 7,285 258 0 7,543 5.38
Obligations of state
and political
subdivisions . . . . . . . 37,946 2,244 65 40,125 9.41
Other securities . . . . . 9,823 447 0 10,270 5.74
-------- ------- ---- --------
TOTAL . . . . . . . . . $182,836 $ 7,966 $338 $190,464
======== ======= ==== ========
</TABLE>
-73-
<PAGE> 83
DEPOSITS AND SHORT-TERM BORROWINGS
Total deposits increased $24,592,000 or 6.75% to $388,867,000 at
December 31, 1994, compared to December 31, 1993. Management's decision to
reduce its interest rates relative to the local market, limited deposit growth
in 1994. Even so, according to the Florida Bankers' Association's Deposit
Share Report as of September 30, 1994, CBI increased its market share of total
IPC deposits in Lake County from 17.82% on December 31, 1993 to 18.22% on
September 30, 1994. CBI's market share of total IPC deposits in Lake County,
Florida on December 31, 1992, was 16.98%.
Time deposits increased $24,237,000 or 14.75% to $188,558,000 at
December 31, 1994. Jumbo CDs ($100,000 and greater) increased $3,051,000 or
12.63% to $27,214,000.
Savings deposits (including money market deposit accounts) totaled
$11,648,000 at December 31, 1994, $5,193,000 or 4.44% less than at December 31,
1993. An increase of $3,790,000 or 12.33% to $34,540,000 occurred in
noninterest-bearing demand deposits from December 31, 1993 to December 31,
1994. Interest-bearing demand and NOW accounts increased $1,758,000 or 3.36%
to $54,122,000.
Average noninterest-bearing demand deposits comprised 8.54% of average
deposits for the year ended December 31, 1994, compared to 7.87% and 7.87% for
the years ended December 31, 1993, and 1992, respectively.
Total deposits grew $21,410,000 or 6.24% to $364,275,000 at December
31, 1993, compared to December 31, 1992. Time deposits increased $6,878,000 or
4.37% to $164,320,000 at December 31, 1993. Included in this increase was an
increase in jumbo CDs of $3,051,000 or 23.14% to $24,163,000.
Savings deposits totaled $116,841,000 at December 31, 1993, $3,440,000
or 3.03% higher than at December 31, 1992. Noninterest-bearing demand deposits
increased $2,993,000 or 10.78% to $30,749,000 at December 31, 1993.
Interest-bearing demand and NOW accounts increased $8,100,000 or 18.30% to
$52,364,000 at December 31, 1993.
The above trend continued through the first nine months of 1995.
During the nine months ended September 30, 1995, total deposits increased
$23,453,000 over the nine months ended September 30, 1994, or 6.16%. For the
same period, time deposits increased $42,641,000 or 23.1%. However, for the
period ended September 30, 1995, savings deposits totaled $90,387,000, a
decrease of $22,710,000 or 20.1% over the nine months ended September 30, 1994.
The decline in saving deposits is partly attributed to the declining interest
rates being paid on deposits. As rates fell, customers transferred funds from
savings deposits to time deposits. Total time deposits increased as
interest-bearing deposits and savings decreased, due in part to product
repricing.
MATURITY OF CERTIFICATES OF DEPOSIT
OF $100,000 OR MORE
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1994 % of Total 1993 % of Total
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Maturity Group:
Under 3 months . . . . . . . . $ 7,609 28.0% $ 6,993 28.9%
3 to 6 months . . . . . . . 2,954 10.9 3,461 14.2
6 to 12 months . . . . . . . 5,067 18.6 4,286 17.7
Over 12 months . . . . . . . 11,584 42.5 9,423 39.2
----------- ----- -------- -----
TOTAL . . . . . . . . . . . $ 27,214 100.0% $ 24,163 100.0%
=========== ===== ======== =====
</TABLE>
Borrowed funds consist of short-term borrowings, primarily federal
funds purchased and securities sold under agreement to repurchase. CBI enters
into agreements to repurchase securities sold to customers. The securities
sold are United States Treasury and agency securities which are included in the
investment portfolio and are held in safekeeping by other large financial
institutions. The repurchase agreements outstanding at December 31, 1994
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<PAGE> 84
are one day agreements which are automatically renewable unless the customer
notifies CNBL. The interest rate on such agreements varies between 1.80% and
5.75%. At the close of 1994 and 1993, CBI had $2,587,000 and $5,491,000 in
securities sold under agreements to repurchase, respectively.
Federal funds purchased mature within one to four days from the
transaction date. At the close of 1994 and 1993, CBI had $3,046,000 and $0 in
federal funds purchased, respectively.
CAPITAL RESOURCES
CBI's capital decreased by $2,818,000 at December 31, 1994 compared to
year end 1993. Of this net decrease, $7,406,000 was attributable to the change
in the adjustment to the unrealized (losses)/gains on certain securities
required by Statement No. 115 of the Financial Accounting Standards Board,
Accounting for Certain Investments in Debt and Equity Securities (see
discussion of FASB No. 115 in the section on investment securities following
and notes 1 and 2 to the consolidated statements included). This reduction was
partially offset by net income of $6,005,000 less dividends declared totaling
$1,417,000.
CBI's ratio of stockholders' equity to period end assets was 7.85%
after the adjustment for FASB No. 115 and 8.66% excluding assets and capital
attributed to FASB No. 115. The 7.85% at December 31, 1994 (net of FASB No.
115) compares to the year end 1993 ratio of 8.95% and the year end 1992 ratio
of 7.63%.
Shareholders' equity (book value) per common share outstanding was
$8.39 after the adjustment for FASB No. 115 and $9.34 before FASB No. 115
adjustment at December 31, 1994. Again, this compares to the shareholders'
equity (book value) per share at year end 1993 and 1992 of $9.09 and $7.10 per
share. For the nine months ended September 30, 1995, shareholders' equity
(book value) per common share outstanding was $10.65 with the adjustment for
FASB No. 115 and $10.52 net of the FASB No. 115 adjustment compared to $9.01
book value per common share outstanding with the adjustment for FASB No. 115 at
September 30, 1994 and $9.31 net of FASB No. 115 adjustment.
The ratio of average shareholders' equity to average assets for 1994
was 8.32% compared to 7.92% in 1993. The increase in the ratio is the result
of the greater increase in average assets of than average assets of 8.15%.
RETURN ON EQUITY AND ASSETS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993
------- --------
<S> <C> <C>
Return on average assets:
Before cumulative change in accounting principle . . . . . . . 1.42% 1.40%
Change in accounting principle . . . . . . . . . . . . . . . . --% .07%
------ ------
Net of change in accounting principle . . . . . . . . . . . . 1.42% 1.47%
------- ------
Return on average equity (including FAS 115 adjustment):
Before cumulative change in accounting principle . . . . . . . 17.07% 17.70%
Change in accounting principle . . . . . . . . . . . . . . . . --% .82%
Net of change in accounting principle . . . . . . . . . . . . 17.07% 18.52%
------ ------
Return on average equity (excluding FAS 115 adjustment):
Before cumulative change in accounting principle . . . . . . . 17.08% 17.01%
Change in accounting principle . . . . . . . . . . . . . . . . --% .82%
------- -------
Net change in accounting principle . . . . . . . . . . . . . . 17.08% 17.83%
------- -------
Tier 1 capital to average assets (leverage ratio) . . . . . . . . 8.95% 8.50%
</TABLE>
The various federal bank regulators, including the Federal Reserve,
have established risk-based requirements for assessing bank holding company and
bank capital adequacy. These standards define "capital" for regulatory
purposes and establish minimum capital standards in relation to assets and
off-balance sheet exposures, as adjusted for credit risks. Capital is grouped
into two tiers. For bank holding companies, Tier 1 or "core" capital consists
of
-75-
<PAGE> 85
common shareholders' equity, perpetual preferred stock (subject to certain
limitations) and minority interests in the common equity account of
consolidated subsidiaries, reduced by goodwill and certain investments in other
corporations ("Tier 1 Capital"). Tier 2 Capital consists of Tier 1 Capital, as
well as the allowance for possible loan losses (subject to certain
limitations), and certain subordinated debt "hybrid capital instruments,"
subordinated and perpetual debt and intermediate term and other preferred stock
("Tier 2 Capital").
At December 31, 1994, a risk-based capital measure and a minimum ratio
standard was fully phased-in with a minimum total capital ratio of 8.00% and
Tier 1 Capital equal to at least 50% of total capital. The Federal Reserve
also has a minimum leverage ratio of Tier 1 Capital to total assets of 3% to
5%.
The Federal Reserve has emphasized that the foregoing standards are
supervisory minimums and that an institution would be permitted to maintain
such minimum levels of capital only if it were rated a composite "one" under
the regulatory rating systems for bank holding companies and banks. All other
bank holding companies are required to maintain a leverage ratio of 3% plus at
least 1% to 2% of additional capital. These rules further provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, within significant
reliance on intangible assets. The Federal Reserve continues to consider a
"tangible Tier 1 leverage ratio" in evaluation proposal for expansion or new
activities. The percentage ratios for CBI, as calculated under the guidelines,
were 17.41% and 18.66% for Tier 1 and total risk based capital, respectively,
at year end 1994, and the leverage ratio was 8.73%. The regulatory capital
ratios of CBI currently exceed the minimum ratios of 3% to 5% leverage capital,
6% Tier 1 and 8% Tier 2 required in 1994 by the Federal Reserve for bank
holding companies. The Federal Reserve has not advised CBI of any specific
minimum leverage ratio applicable to it.
The following table sets forth the regulatory capital calculations of
CBI and its subsidiary on consolidated basis as of December 31, 1994 and 1993,
calculated in accordance with the applicable requirements of the Federal
Reserve in effect on such dates:
<TABLE>
<CAPTION>
RISK BASED CAPITAL CALCULATIONS
(Dollars in Thousands)
DECEMBER 31,
------------
1994 % 1993 %
---------------- ----------------
<S> <C> <C> <C> <C>
Shareholders' equity . . . . . . . . . $ 33,976 $ 36,794
Regulatory capital
Tier 1 risk based:
Actual . . . . . . . . . . . . . . 33,797 17.41% 33,208 16.38%
Minimum required . . . . . . . . . 13,026 6.00% 12,164 6.00%
--------- ------- -------- -----
Excess above minimum . . . . . . . 24,771 11.41% 21,044 10.38%
========= ======= ======== =====
Total risk based:
Actual . . . . . . . . . . . . . . 40,514 18.66% 35,698 17.61%
Minimum required . . . . . . . . . 17,369 8.00% 16,217 8.00%
--------- ------- -------- -----
Excess above minimum . . . . . . . 23,145 10.66% 19,481 9.61%
========= ======= ======== =====
Average assets . . . . . . . . . . . . $ 422,465 $390,596
========= ========
Total assets . . . . . . . . . . . . . $ 432,828 $410,908
========= ========
Leverage Ratio . . . . . . . . . . . . 8.73% 8.08%
======= =====
</TABLE>
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<PAGE> 86
BALANCE SHEET MANAGEMENT
Liquidity Management
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses CBI's
ability to meet deposit withdrawals either on demand or at contractual
maturity, pay other liabilities and to make new loans and investments as
opportunities arise.
Contractual maturities for assets and liabilities are reviewed to meet
current and future liquidity requirements. Sources of liquidity, both
anticipated and unanticipated, are maintained through a portfolio of high-
quality marketable assets, such as residential mortgage loans, investment
securities, and federal funds purchased. CBI has access to unsecured federal
funds lines of credit and is able to provide short-term financing of its
activities by selling, under agreement to repurchase, U.S. Treasury and
Government agency securities (including certain mortgage-backed securities)
not pledged to secure public deposits or trust funds. At December 31, 1994,
CBI had available federal funds lines of credit of $4,454,000. At December 31,
1994, CBI had $140,850,000 U.S. Treasury and Government agency securities not
pledged and available for sale under repurchase agreements. At December 31,
1993, the amount of securities available and unpledged was $142,892,000.
Liquidity, as measured in the form of cash and cash equivalents,
totaled $14,322,000 at December 31, 1994. At December 31, 1993, cash and cash
equivalents totaled $15,266,000. Cash and cash equivalents vary with seasonal
deposit movements and are generally higher in the winter than in the summer,
and vary with the level of principal repayments occurring in CBI's investment
securities portfolio and loan portfolio.
As is typical of financial institutions, cash flows from investing
(primarily in loans and securities) and from financing (primarily through
deposit generation and short-term borrowings) are greatly in excess of cash
flows from operations. In 1994, the cash flow from operations of $7,074,000
was 19.84% higher than during the same period of 1993. Cash flows from
investing and financial activities reflect the increase in securities, loans
and deposit balances experienced in 1994. In 1993, cash flows from operations
of $5,903,000 were 5.05% higher than in 1992.
Interest Rate Sensitivity
Interest rate movements and competitive pressures from unregulated
institutions as well as banks and thrifts have made managing CBI's interest
rate sensitivity increasingly important. CBI's Asset/Liability Management
Committee is responsible for managing CBI's exposure to changes in market
interest rates. This Committee attempts to maintain stable net interest
margins by generally matching the volume of assets and liabilities maturing, or
subject to repricing, and by adjusting rates to market conditions and changing
interest rates.
Interest rate exposure is managed by monitoring the relationship
between earning assets and interest-bearing liabilities, focusing primarily on
those that are rate-sensitive. Rate-sensitive assets and liabilities are those
that reprice at market interest rates within a relatively short period, defined
by the Committee as one year or less. The difference between rate-sensitive
assets and rate-sensitive liabilities represents CBI's interest sensitivity
gap, which may be either positive (rate sensitive assets exceed rate sensitive
liabilities) or negative (rate sensitive liabilities exceed rate sensitive
assets).
On December 31, 1994, CBI had a negative gap position based on
contractual maturities and prepayment assumptions for the next 12 months with a
negative interest rate sensitivity gap as a% of total earning assets of 27.8%.
This means that CBI's assets repriced more slowly than its deposits and other
liabilities. In a declining interest rate environment, the cost of CBI's
deposits and other liabilities may be expected to fall faster than the interest
received on its earning assets, thus increasing the net interest spread. If
interest rates generally increase, the negative gap means that the interest
received on earning assets may be expected to increase more slowly than the
interest paid on CBI's liabilities, therefore decreasing the net interest
spread.
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<PAGE> 87
CBI's asset liability committee has made hypothetical projections in
an effort to estimate the worst case impact on CNBL's Net Interest Margin
should prime interest rates increase significantly (2%) and immediately.
Although management feels that this scenario is unlikely based on current and
long-range economic projections, an immediate increase in interest rates of 2%
would reduce Net Interest Margins by 23 basis points. Management monitors the
gap position on an ongoing basis in an effort to keep interest rate risk within
levels acceptable to CBI.
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<PAGE> 88
INTEREST RATE SENSITIVITY ANALYSIS (1)
AS OF DECEMBER 31,
(Dollars in Thousands)
<TABLE>
<CAPTION>
0-3 4-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
------ ------ ----- ------ -----
1994
<S> <C> <C> <C> <C> <C>
Earning assets:
Loans (2) . . . . . . . . . . . . . . . $ 59,179 $ 85,743 $ 41,798 $ 12,232 $198,952
Investment securities (3) . . . . . . . 6,411 20,823 66,427 118,885 212,547
Federal funds sold and other short-term
investments . . . . . . . . . . . . . 0 0 0 0 0
-------- -------- -------- -------- ---------
Total earning assets (2) . . . . . . . . . 65,590 106,566 108,225 131,117 411,498
Savings deposits . . . . . . . . . . . . . 165,770 0 0 0 165,770
Certificates of deposits . . . . . . . . . 40,688 70,224 74,950 2,696 188,558
Federal funds purchased and other short-term
borrowings . . . . . . . . . . . . . . 5,633 0 0 0 5,633
-------- -------- -------- -------- ---------
Total interest-bearing liabilities . . . . 212,091 70,224 74,950 2,696 359,961
-------- -------- -------- -------- ---------
Interest sensitivity gap . . . . . . . . . (146,501) 36,341 33,275 128,421 51,536
Cumulative interest sensitivity gap . . . . (146,501) (110,160) (76,885) 51,536
Cumulative gap to earning assets (%) . . . (223.4%) (64.0%) (27.4%) 12.5%
Earning assets to interest-bearing liabilities 30.9% 144.4% 151.8% 4,863.4%
1993
Earning assets:
Loans (2) . . . . . . . . . . . . . . . 53,405 83,373 34,850 6,160 177,788
Investment securities (3) . . . . . . . 8,881 25,158 60,456 106,413 200,908
Federal funds sold and other short-term
investments . . . . . . . . . . . . . 1,098 0 0 0 1,098
--------- ---------- --------- --------- ---------
Total earning assets(2) . . . . . . . . . . 63,384 108,531 95,306 112,573 379,794
--------- ---------- --------- --------- ---------
Savings deposits . . . . . . . . . . . . . 171,594 0 0 171,594
Certificates of deposits . . . . . . . . . 37,517 62,779 61,790 2,396 164,482
Federal funds purchased and other short-term
borrowings . . . . . . . . . . . . . . 5,497 0 0 0 5,497
--------- ---------- --------- --------- ---------
Total interest-bearing liabilities . . . . 214,608 62,779 61,790 2,396 341,573
--------- ---------- --------- --------- ---------
Interest sensitivity gap . . . . . . . . . (151,224) 45,752 33,516 110,177 38,221
Cumulative interest sensitivity gap/total
earning assets . . . . . . . . . . . . . (151,224) (105,472) (71,956) 38,221
Cumulative gap to earning assets (%) . . . (238.6%) (61.4%) 26.9% 10.1%
Earning assets to interest-bearing liabilities 29.5% 172.8% 154.2 4,698.4%
- -----------------------------
</TABLE>
(1) The repricing dates may differ from maturity dates for certain assets
due to repayment assumptions.
(2) Excludes nonaccrual loans.
(3) Investment securities are stated at amortized cost.
As seen in the preceding table, for the one-year period ended December
31, 1994, 78.4% of interest-bearing liabilities will reprice compared to 41.8%
of all interest-bearing assets. In addition, the interest rate spread between
an asset and its supporting liability can vary significantly while the timing
of repricing for both the asset and the liability remains the same, thus
impacting net interest income. This is referred to as basis risk, and,
generally relates to the possibility that the repricing characteristics of
short-term assets tied to CBI's prime lending
-79-
<PAGE> 89
rate are different from those of short-term funding sources such as
certificates of deposit and interest-bearing deposits.
Varying interest rate environments can create unexpected changes in
prepayment levels of assets which are not reflected in the interest sensitivity
analysis report, and changes in the mix of assets and liabilities. Prepayments
and such other changes may have significant effects on CBI's net interest
margin. Rates on assets and liabilities may not move completely in tandem.
Because of these factors, static modeling of the interest sensitivity gap
reports may not provide a complete assessment of CBI's exposure to changes in
interest rates. Management utilizes computerized interest rate simulation
analysis to evaluate CBI's interest rate sensitivity, but such modeling cannot
reflect all conditions or results that could arise.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, on a fully tax equivalent basis (TEB), totaled
$18,560,000, $16,896,000 and $15,450,000 for 1994, 1993 and 1992, respectively.
Net interest income for 1994 increased 9.85% from 1993. The spread earned on
increased deposits was relatively stable during 1994, notwithstanding six
changes in interest rate levels by the Federal Reserve and changes in CBI's mix
of deposits. The average cost of interest-bearing liabilities decreased
slightly from 3.58% during 1993 to 3.55% during 1994, while the average yield
on earning assets decreased from 7.78% during 1993 to 7.75% during 1994. The
decreases in average interest costs and yields on earning assets, coupled with
increased noninterest-bearing deposits and shareholders' equity resulted in a
slight increase in the net interest income/yield on average earning assets from
4.58% in 1993 to 4.64% during 1994. Net interest income for the first nine
months of 1995 reflected improvement over the same period in 1994. Through
September 30, 1995, net interest income on a nontax equivalent basis was
$12,994,000, 1.7% higher than the $12,775,000 for the nine months ended
September 30, 1994.
As a% of average earning assets, net interest margin (TEB) in 1994 was
4.64% in the fourth quarter, compared to 4.61% in the third quarter, 4.82% in
the second quarter and 4.47% for the first quarter of 1994.
For the years ended December 31, 1994 and 1993, the table below
discloses the increases and decreases in net interest income attributable to
changes in the volume and rates of individual earning assets and
interest-bearing liabilities. The balances of nonaccruing loans are included
in average loans outstanding.
-80-
<PAGE> 90
RATE VOLUME VARIANCE ANALYSIS
TAXABLE EQUIVALENT BASIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
AVERAGE VOLUME CHANGE IN VOLUME
------------------------------------- ------------------------
1994 1993 1992 1994-93 1993-92
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of unearned
interest . . . . . . . . . . $ 186,968 $ 170,577 $ 154,347 $ 16,391 $ 16,230
---------- ---------- ---------- --------- ---------
Investment securities:
Taxable . . . . . . . . . . . 163,089 154,190 150,743 8,899 3,447
Tax-exempt . . . . . . . . . 44,336 32,514 27,834 11,822 4,680
---------- ---------- ---------- --------- ---------
Total . . . . . . . . . . . . 207,425 186,704 178,577 20,721 8,127
---------- ---------- ---------- --------- ---------
Federal funds
sold . . . . . . . . . . . . 5,952 11,566 9,479 (5,614) 2,087
Total earning
assets . . . . . . . . . . . $ 400,345 $ 368,847 $ 342,403 $ 31,498 $ 26,444
========== ========== ========== ========= ==========
Interest-bearing liabilities:
Demand . . . . . . . . . . . $ 55,069 $ 49,083 $ 42,798 $ 5,986 $ 6,285
Savings . . . . . . . . . . . 114,558 114,330 105,406 228 8,924
Time deposits . . . . . . . . 176,704 162,056 156,700 14,648 5,356
Federal funds purchased 4,360 3,531 4,855 829 (1,324)
---------- ---------- ---------- --------- ---------
Total interest-bearing
liabilities . . . . . . . . . $ 350,691 $ 329,000 $ 309,759 $ 21,691 $ 19,241
========== ========== ========== ========= ==========
Net interest income/net
interest spread . . . . . . . $ 49,654 $ 39,847 $ 32,644 $ 9,807 $ 7,203
========== ========== ========== ========= ==========
Net yield on
earning assets. . . . . . . .
Net cost of
funds . . . . . . . . . . . .
</TABLE>
<TABLE>
<CAPTION>
AVERAGE RATE INCOME/EXPENSE
--------------------------------- ---------------------------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of unearned
interest . . . . . . . . . . . 7.96% 7.60% 8.25% $14,892 $12,969 $12,731
Investment securities:
Taxable . . . . . . . . . . . . 7.18 7.71 8.42 11,705 11,866 12,688
Tax-exempt . . . . . . . . . . 9.43 10.7 11.6 4,180 3,480 3,228
------- ------- -------
Total . . . . . . . . . . . . . 7.66 8.23 8.91 15,885 15,346 15,916
------- ------- -------
Federal funds
sold . . . . . . . . . . . . . 4.00 3.00 3.38 238 347 320
------- ------- -------
Total earning
assets . . . . . . . . . . . . 7.75 7.78 8.46 $31,015 $28,662 $28,967
======= ======= =======
Interest-bearing liabilities:
Demand . . . . . . . . . . . . 2.01 2.14 2.14 $ 1,108 $ 1,052 $ 1,167
Savings . . . . . . . . . . . . 2.56 2.68 3.49 2,927 3,069 3,683
Time deposits . . . . . . . . . 4.68 4.67 5.43 8,268 7,574 8,516
Federal funds purchased 3.49 2.58 3.11 152 91 151
------- ------- -------
Total interest-bearing
liabilities . . . . . . . . . . 3.55 3.58 4.36 $12,455 $11,786 13,517
======= ======= =======
Net interest income/net
interest spread . . . . . . . . 4.20 4.20 4.10 $18,560 $16,876 $15,450
======= ======= =======
Net yield on
earning assets. . . . . . . . . 4.64 4.58 4.51
Net cost of
funds . . . . . . . . . . . . . 3.11 3.20 3.95
</TABLE>
-81-
<PAGE> 91
RATE VOLUME VARIANCE ANALYSIS (CONTINUED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
VARIANCE ATTRIBUTED TO
INCOME/EXPENSE ----------------------
VARIANCE 1994 1993
------------------ ------------------------------- --------------------------------
1994-93 1993-92 VOLUME RATE MIX VOLUME RATE MIX
------ ------- ------ ------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of
unearned interest . . $1,923 $ 238 $1,246 $ 677 $1,923 $1,339 $(1,101) $ 238
------ ------- ------ ------- ------ ------ ------- -------
Investment securities:
Taxable . . . . . . (181) (802) 686 (867) (181) 290 (1,092) (802)
Tax-exempt . . . . . 700 252 1,265 (565) 700 543 (291) 252
------ ------- ------ ------- ------ ------ ------- -------
Total . . . . . . . . . 519 (550) 1,951 (1,432) 519 833 (1,383) 550
Federal funds sold (109) 27 (168) 59 (109) 71 (44) 27
Total earning
assets . . . . . . . $2,333 $ (285) $3,029 $ (696) $2,333 $2,243 $(2,528) $ (285)
====== ======= ====== ======= ====== ====== ======= =======
Interest-bearing
deposits:
Demand . . . . . . . $ 56 $ (115) $ 128 $ (72) $ 56 $ 172 $ (287) $ (115)
Savings . . . . . . (142) (614) (6) 136 (142) 311 (925) (614)
Time deposits 694 (942) 684 10 694 291 (1,233) (942)
Federal funds
purchased . . . . 61 (60) 21 40 61 (41) (19) (60)
------ ------- ------ ------- ------ ------ ------- -------
Total interest-
bearing deposits. . .
$ 669 $(1,731) $ 827 $ (158) $ 669 $ 733 $(2,464) $(1,731)
------ ------- ------ ------- ------ ------ ------- -------
Net interest income/
net interest spread . $1,664 $(1,446) $2,202 $ (538) $1,664 $1,510 $ (64) $ 1,446
====== ======= ====== ======= ====== ====== ======= =======
</TABLE>
-82-
<PAGE> 92
CONSOLIDATED AVERAGE BALANCES,
INTEREST INCOME/EXPENSE AND YIELD/RATES
(Dollars in Thousands)
<TABLE>
<CAPTION>
TAXABLE EQUIVALENT YIELD BASIS
1994 1993 1993-1994
--------------------------------- ---------------------------------- AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ GROWTH
BALANCE EXPENSE RATE BALANCE EXPENSE RATE RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earnings assets:
Investment securities:
Taxable . . . . . . . . . $ 163,089 $ 11,705 7.18% $ 154,190 $ 11,886 7.71% 5.78%
Tax-exempt . . . . . . . . 44,336 4,180 9.43 32,514 3,480 10.70 36.36
------ ----- ------ -----
Total Investment Securities 207,425 15,885 7.66 186,704 15,366 8.23 11.10
Federal funds sold and other
short-term investments . 5,952 238 4.00 11,566 347 3.00 (48.54)
Loans, net(2) . . . . . . . . 186,968 14,892 7.96 170,577 12,969 7.60 9.61
------- ------ ------- ------
Total earning assets . . . . $ 400,345 $ 31,015 7.75 $ 368,847 $ 28,682 7.78% 8.54
Allowance for loan losses . . (2,749) (2,118) 30.00
Cash and due from banks . . . 11,254 10,760 4.59
Bank premises and equipment . 6,990 6,889
Other assets . . . . . . . . 6,625 6,218 6.55
----- ------
Total assets . . . . . . . . $ 422,465 $ 390,596 8.16%
======= ======= =====
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Demand . . . . . . . . . . $ 55,059 $ 1,108 2.01% $ 49,083 $ 1,052 2.14% 12.20%
Savings and money market . 114,558 2,927 2.56 114,330 3,069 2.68 0.20
Time deposits . . . . . . 176,704 8,268 4.68 162,056 7,574 4.67 9.04
Federal funds purchased and
securities sold under
agreement to repurchase 4,360 152 3.49 3,531 91 2.58 23.48
----- --- ----- --
Total interest-bearing liabilities $350,681 12,455 3.55 $ 329,000 11,786 3.58 6.59
Demand Deposits:
Noninterest-bearing deposits $32,735 $ 28,093 16.52
Other liabilities . . . . . . 3,894 2,578 51.05
----- -----
Total Liabilities . . . . 387,310 359,671 7.68
Shareholders' equity . . . . 35,155 30,925 13.68
------ ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY . . . $ 422,465 $ 390,596 8.16
======= ======= ====
Interest Expense as % of earning assets 3.11 $ 16,896 3.20
Net interest income/yield on earning assets $18,560 4.64 4.58
- -----------------------------
</TABLE>
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans have
been included in interest on loans.
-83-
<PAGE> 93
Like earning asset yields, the interest rates paid on interest-bearing
liabilities declined. The 3 basis point decline from 3.58% in 1993 to 3.55% in
1994 was primarily a result of increasing banking liquidity allowing rates to
fall. The average balance for interest-bearing liabilities increased
$21,681,000 or 6.6% to $350,681,000 in 1994 compared to 1993. The following
table shows the components comprising this increase.
CHANGES IN AVERAGE INTEREST-BEARING LIABILITIES
(Dollars in Thousands)
<TABLE>
<CAPTION>
INCREASE/(DECREASE) INCREASE/(DECREASE)
1994 VS. 1993 1993 VS. 1992
---- --- ---- ---- --- ----
<S> <C> <C> <C> <C>
Interest-bearing demand . . . . . . . . . . . . . . . $ 5,976 12.2% $ 6,285 14.7%
Savings and money market . . . . . . . . . . . . . . 228 .2 8,924 8.5
Time deposits . . . . . . . . . . . . . . . . . . . . 14,648 9.0 5,356 3.4
Securities sold under agreements to repurchase . . . 829 23.5 (1,324) (27.2)
------ ------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $ 21,681 6.6% $ 19,241 6.2%
====== =======
</TABLE>
Net interest income (TEB) totaled $16,896,000 for 1993, an increase of
$1,446,000 or 9.36% from 1992. Net interest income (TEB) as a% of average
earning assets was 4.58% compared to 4.51% for 1992. The increase in this
ratio during 1993 can be attributed to a decrease in the rate paid on
interest-bearing liabilities that exceeded the decrease in the yield on earning
assets.
Yields on earning assets declined in 1993 as a result of lower interest
rates generally. The yield on earning assets declined 68 basis points from
8.46% in 1993 to 7.78% for the year 1993 compared to 1992. Approximately
$26,444,000 of earning assets were funded primarily from increased deposits.
The decline in yields on average earning assets in 1993 was offset by a 78
basis point decrease in interest rates paid on average interest-bearing
liabilities from 4.36% in 1992 to 3.58% in 1993. Reduced loan demand and
declining market interest rates permitted CBI management to decrease the rates
offered on demand accounts, savings, and money market accounts. Rates paid for
time deposits declined 76 basis points during 1993, while average time
deposits increased 3.42% to $162,056,000.
EFFECTS OF INFLATION, CHANGING PRICES, AND CHANGING INTEREST RATES
The financial statements presented herein were prepared in accordance with
generally accepted accounting principles and do not attempt to consider changes
in the relative value of money due to inflation over a period of time.
Inflation generally increases the costs of funds and operating overhead,
and to the extent loans and other assets bear variable rates, the yields on
such assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant effect on the performance of a
financial institution than the effects of general levels of inflation.
Although interest rates do not necessarily move in the same direction or to the
same extent as the prices of goods and services, increases in inflation
generally have resulted in increased interest rates. From the beginning of
1994 through the first quarter of 1995, the Federal Reserve has increased
interest rates 300 basis points in an effort to curb inflation through monetary
policy. In addition, inflation affects financial institutions' increased cost
of goods and services purchased, the cost of salaries and benefits, occupancy
expense, and similar items. Inflation and related increases in interest rates
generally decrease the market value of investments and loans held and may
adversely affect liquidity, earnings, and shareholders' equity. Mortgage
origination and refinancings tend to slow as interest rates increase, and
generally reduce earnings from such activities. Changes in interest rates also
affect the mix and types of deposits and assets sought by customers. In the
summer of 1995, the Federal Reserve reduced rates by 50 basis points as
inflation fears subsided.
Changing property values, especially in an economy that is still struggling
towards recovery could have a negative impact on the value of real estate owned
by CBI acquired through foreclosure as well as real estate
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<PAGE> 94
securing CBI's loans. Accordingly, management conducts an ongoing review of
the property owned through foreclosure and the property values securing
delinquent loans and will write down or reserve for marginal equity positions
as deemed necessary.
NONINTEREST INCOME
Noninterest income consists of revenues generated from fee-based services
and commissions, and gains or losses recognized from the sale of investment
portfolio securities. Total noninterest income for 1994 decreased $568,000 or
22.1% compared to 1993. Noninterest income for 1993 decreased $512,000 or
16.6% from 1992. For the first nine months of 1995, total noninterest income
increased $267,000 or 18.8% from the same period in 1994.
The table below shows CBI's noninterest income for the years indicated.
<TABLE>
<CAPTION>
YEAR ENDED% CHANGE
------------ ------
1994 1993 1992 94/93 93/92
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts . $1,107 $1,162 $1,111 (4.73%) 4.59%
Trust income . . . . . . . . . . . . 716 588 449 21.77% 30.96%
Other income . . . . . . . . . . . . 350 378 408 (7.41%) (7.35%)
Investment securities gain (loss) . . (168) 445 1,117 (137.75%) (60.16%)
--- ----- --------- --------
TOTAL . . . . . . . . . . . . . . . . $2,005 $2,573 $3,085 (22.08%) (16.60%)
====== ====== ====== ======== ========
</TABLE>
Fee income from service charges on deposit accounts decreased slightly
by $55,000 (4.7%) in 1994 from 1993 and increased $51,000 (4.6%) in 1993 from
1992. The decrease in 1994 resulted from a trend to higher quality demand
accounts that incurred fewer NSF charges. Emphasis on checking account
services, appropriate pricing for transaction deposit accounts, and fee
collection practices for other deposit services will be important factors to
increasing service charge income for future years. The first nine months of
1995 showed a slight increase of $4,000 or 0.5% in deposit service charges as
compared to the same period in 1994.
Noninterest income, excluding securities gains, increased as a result
of increased income from trust income, partially offset by decreased service
charges on deposit accounts and decreased fee income from mortgages originated
for resale in the secondary market. These changes resulted from increased
trust volume and increased pricing and certain trust services partially offset
by decreased service charge and fee volume of activity.
Securities transactions resulted in losses of $168,000 for the year
ended December 31, 1994, compared to gains of $445,000 in 1993, or a total
change of $613,000. Securities gains in 1992 were $1,117,000.
For the year ended December 31, 1992, noninterest income increased due
to service charges on deposit accounts, primarily the result of repricing
certain services, increased trust volume and increased gains from securities
sales. Various recurring noninterest other income items include travelers
check fees, safe deposit box fees, and origination fees on mortgage loans.
-85-
<PAGE> 95
NONINTEREST EXPENSES
The table below shows CBI's noninterest expenses for the years
indicated.
NONINTEREST EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended % Change
------------------------------------- ---------------------
1994 1993 1992 94/93 93/92
-------------------------------------------------- --------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $5,342 $ 5,045 $ 4,550 5.9% 10.9%
Occupancy expense 1,078 1,166 1,062 (7.5) 9.8
Equipment expense 911 756 774 20.5 (2.3)
Stationery and supplies 356 273 294 30.4 (7.1)
Advertising 285 275 219 3.6 25.6
Insurance, including regulatory assessments 891 836 786 6.6 6.4
Postage 195 170 16 14.7 4.3
Taxes (other than payroll, real estate and 205 206 206 (0.5) 0.0
income taxes)
Directors' fees 265 266 233 (0.4) 14.2
Trust Department expense 136 118 104 15.3 13.5
Other expense 793 786 935 0.9 (159)
--- --- ---
TOTAL $10,457 $9,897 $9,326 5.7% 6.1%
======= ====== ======
</TABLE>
Noninterest expenses increased in 1994 by $560,000 or 5.66% over 1993.
This increase was primarily the result of an increase in salaries and employee
benefits from $5,045,000 in 1993 to $5,342,000 in 1994, or 5.89%. Salaries and
employee benefits increased due to general salary increases, increased profit
sharing payments that are related to improved performance of CBI and the
related payroll taxes. Noninterest expenses totaled $9,326,000 in 1992. As of
September 30, 1995, total salary and employee benefits increased $306,000 or
7.7% over the same period in 1994 as a result of annual salary increases and
related benefits.
Occupancy expense decreased by $88,000 in 1994 compared to 1993, or 7.55%.
This increase is primarily due to expenses incurred in 1993 related to opening
the Wildwood branch that did not recur in 1994. For the first nine months of
1995, occupancy expenses increased $53,000 or 6.6% over the same period in
1994.
FDIC deposit insurance premiums increased $55,000 or 7.07% in 1994 as a
result of the increase in deposits. Since 1989, the annual premium rate has
increased from .09% of total deposits to .23% of total deposits. The rate
assessed on deposits in l994 ranged from .23% to .29%, depending on the capital
adequacy and examination ratings imposed by governing bank regulatory
authorities on individual financial institutions.
The increase in noninterest expenses in 1993 was attributable in part to a
10.88% growth in salaries and employee benefits, staffing additions for a new
branch opened in 1993, general salary increases and increased profit sharing
payments that are related to CBI performance and related increases in payroll
taxes.
Occupancy and equipment expense increases in 1993 from 1992 were, in large
part, related to the opening of the branch in Wildwood.
FDIC deposit insurance premiums increased $65,000 or 9.15% in 1993 from
1992 due to increased deposit balances. Other noninterest expenses decreased
$150,000 or 16.03% in 1993 from 1992, primarily as a result of decreased legal
fees and provisions for claims against CNBL's Trust Department totaling
$178,000 in 1992 that did not recur in 1993.
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<PAGE> 96
PROVISION FOR LOAN LOSSES, NET CHARGE-OFFS AND ALLOWANCE FOR LOAN LOSSES
Net charge-offs for 1994 declined $176,000 or 64.7% to $96,000. The
significant decline in net charge-offs and delinquencies in 1994 resulted in a
$475,000 or 44.2% decline in the 1994 provision for loan losses when compared
to 1993. CBI's net charge-offs for 1995 declined $241,000 or 251.04% to
$(145,000) reflecting greater recoveries than charge-offs in the latest period.
The significant decline in net charge-offs and delinquencies in 1995 resulted
in a $345,000 or 57.50% decline in the 1995 provision for loan losses when
compared to 1994. The net recoveries were primarily attributed to one real
estate loan previously written down. For the year ended December 31, 1993, the
provision for loan losses was $1,075,000 compared to $1,400,000 for 1992. The
1993 reduction in the provision resulted from an improving economy and a
decline in net charge-offs and delinquencies from the higher levels encountered
in 1992 and 1991. See "--Nonperforming Assets" and "--Allowance for Loan
Losses."
CBI's internal loan monitoring systems provide detailed monthly analysis of
delinquencies, nonperforming assets, and potential problem loans, which are
reviewed regularly by the Board of Directors.
Management determined the provision for loan losses which is charged to
operations by analyzing and monitoring delinquencies, nonperforming loans and
the level of outstanding balances for each loan category, as well as the amount
of net charge-offs, and by estimating losses inherent in its portfolio. While
CBI's policies and procedures used to estimate the monthly provisions for loan
losses charged to operations are considered adequate by management and are
reviewed from time to time by the OCC, there exist factors beyond the control
of CBI, such as general economic conditions both locally and nationally, which
make management's judgment as to the adequacy of the provision necessarily
approximate.
The following table provides certain information concerning CBI's
allowances for loan losses for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
SEPTEMBER 30, 1995 1994 1993 1992 1991 1990
------------------ ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Allowance for loan losses beginning balance $ 2,994 $ 2,490 $ 1,687 $ 1,671 $ 1,412 $ 1,514
--------- -------- --------- -------- -------- --------
Provision for loan loss expense 255 600 1,075 1,400 1,004 876
--------- -------- --------- -------- -------- --------
Gross loan charge-offs:
Commercial, financial and agricultural 0 55 0 545 254 335
Installment 69 78 60 97 138 488
Real estate 4 78 321 790 456 197
--------- -------- --------- -------- -------- --------
TOTAL CHARGE-OFFS (73) (211) (381) (1,432) (848) (1,020)
--------- -------- --------- -------- -------- --------
Recoveries:
Commercial, financial and agricultural 22 59 33 0 2 0
Installment 20 8 54 34 44 41
Real estate 16 48 22 14 57 1
--------- -------- --------- -------- -------- --------
TOTAL RECOVERIES 58 115 109 48 103 42
--------- -------- --------- -------- -------- --------
Allowance for loan losses, ending balance $ 3,234 $ 2,994 $ 2,490 1,687 1,671 1,412
========= ======== ========= ======== ======== ========
Daily average loans outstanding* $ 209,058 $186,968 $ 170,577 $154,347 $136,118 $113,619
Allowance for loan losses to average
loans outstanding 1.55% 1.60% 1.46% 1.09% 1.23% 1.24%
Ratio of net charge-offs to average
loans outstanding .01% 0.05% 0.16% 0.90% 0.55% 0.86%
Allowance for loan losses to nonperforming
loans 520.77% 595.23% 306.65% 41.23% 102.45% 75.37%
- -----------------------
* Net of unearned income
</TABLE>
The allowance for loan losses was $2,994,000 at December 31, 1994, $504,000
higher than one year earlier. The ratio of the allowance for loan losses to
total loans outstanding (net of unearned income) was 1.51% at December 31,
1994, 1.39% at December 31, 1993, and 1.05% at December 31, 1992. The
allowance for loan losses as a% of nonaccrual loans was 595.23% at December 31,
1994, 305.99% at December 31, 1993, and
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<PAGE> 97
65.62% at December 31, 1992. During 1994, substantial improvement over
the prior year performance occurred in all significant measures of loan
quality. There were no accruing loans past due 90 days or more at December 31,
1994 or 1993. The allowance for loan losses was $3,234,000 at September 30,
1995, $296,000 higher than September 30, 1994. At September 30, 1995, the
allowance for loan losses was 1.46% of total loans outstanding.
During 1994, CBI experienced net charge-offs of $96,000, compared to
$272,000 one year earlier, a 64.71% reduction. Net charge-offs for 1992 were
$1,384,000. Net charge-offs as a percentage of average loans outstanding were
0.05% for 1994, the lowest percentage CBI has reported since 1988. Net
installment loan losses were $70,000 in 1994, compared to $6,000 in 1993, and
$63,000 in 1992. Commercial, financial and agricultural loans showed a net
recovery of $4,000, a net recovery of $33,000 and a net loss of $545,000,
respectively, for the same periods. Real estate loan net charge-offs were
$30,000 in 1994, $299,000 in 1993 and $776,000 in 1992.
The following table summarizes CBI's allocation of the allowance for loan
losses to each type of loan and information regarding the composition of the
loan portfolio at the dates indicated.
ALLOCATION OF LOAN LOSS RESERVE
AS OF DECEMBER 31
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992 1991
---- ---- ---- ----
AMOUNT % OF AMOUNT % OF AMOUNT % OF AMOUNT % OF
------ ---- ---- ------ ----- ------ ----
TOTAL TOTAL TOTAL TOTAL
---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 683 22.8% $ 258 10.4% $ 258 15.9% $ 234 14.0%
Real estate 2,201 73.5 1,897 76.2 1,214 72.0 1,253 75.0
Consumer 110 3.7 335 13.4 205 12.1 184 11.0
------ ----- ------ ----- ------ ----- ------ ----
TOTAL $2,994 100.0% 2,490 100.0% 1,687 100.0% 1,671 100.0%
====== ===== ====== ===== ====== ====== ====== =====
</TABLE>
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS
The allowance for loan losses represents management's estimate of an
amount adequate in relation to the risk of future losses inherent in the loan
portfolio. In its continuing evaluation of the allowance and its adequacy,
management considers, among other factors, CBI's loan loss experience, the
amount of past due and nonperforming loans, current and anticipated economic
conditions, and the values of certain loan collateral, and other assets. The
size of the allowance also reflects the large amount of permanent residential
loans held by CBI whose historical charge-offs and delinquencies have been
very satisfactory.
It is CBI's policy to charge off loans in the current period in which a
loss is considered probable. There are always risks of future losses which
cannot be quantified precisely or attributed to particular loans or classes of
loans. Because these risks include the state of economy as well as conditions
affecting individual borrowers, management's judgment of the allowance is
necessarily approximate. It is also subject to regulatory examinations and
determinations as to adequacy, which may take into account such factors as the
methodology used to calculate the allowance for loan losses and the size of the
allowance for loan losses in comparison to peer group companies identified by
the regulatory agencies.
In assessing the adequacy of the allowance, management relies
predominantly on its ongoing review of the loan portfolio, which is undertaken
both to ascertain whether there are probable losses which must be charged off
and to assess the risk characteristics of the portfolio in the aggregate. This
review considers the judgment of management, and also those of bank regulatory
agencies that review the loan portfolio as part of their regular examination
process. An examination by the OCC during the year revealed no major
differences in judgments or methodology related to the allowance for loan
losses.
On September 30, 1995, the allowance for loan losses was $3,234,000,
$240,000 higher than on December 31, 1994. The ratio of the allowance for loan
losses to net average loans outstanding was 1.55% at September 30, 1995,
compared to 1.60% at December 31, 1994. On December 31, 1994, the allowance
for loan losses was
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<PAGE> 98
$2,994,000, $504,000 higher than on December 31, 1993. The ratio of
the allowance for loan losses to net average loans outstanding was 1.60% at
December 31, 1994, compared to 1.46% at December 31, 1993. On December 31,
1993, the allowance for loan losses was $2,490,000, $803,000 higher than on
December 31, 1992. The ratio of the allowance for loan losses to average loans
outstanding was 1.46% at December 31, 1993, compared to 1.09% at December 31,
1992.
For 1993, CBI had net charge-offs of $272,000 compared to $1,384,000
for the same period in 1992. Total commercial, financial and agricultural loan
net (recoveries) were ($33,000) for 1993 versus $545,000 for the comparable
period in 1992. Total real estate net charge-offs were $299,000 in 1993 and
$776,000 in 1992.
In assessing the adequacy of the allowance, management relies
predominantly on its ongoing review of the loan portfolio, which is undertaken
both to ascertain whether there are probably losses which must be charged off
and to assess the risk characteristics of the portfolio in the aggregate. This
review takes into consideration the judgments of the lending officers, senior
management and those the bank regulatory agencies that review the loan
portfolio as part of CBI's examination process. A specific percentage is
allocated to each loan category, with additional amounts being added for
individual problem loans considered to have specific loss potential. While all
information available is used by management to recognize losses in the loan
portfolio, there can be no assurances that future additions to the allowance
will not be necessary. CBI's loan committee reviews the assessments of
management in determining the adequacy of the allowance for loan losses.
CBI's allowance for loan losses is also subject to regulatory
examinations and determinations as to adequacy, which may take into account
such factors as the methodology used to calculate the allowance for loan loss
reserves and size of the loan loss reserve in comparison to a group of peer
banks identified by the regulators. During its routine examinations of
national banks, the OCC has, from time to time, required additions to a
national bank's provisions for loan losses and allowances for loan losses as
the regulators' credit evaluations and allowance for loan loss methodology have
differed from those of the management of a national bank. During the last
several years, several large bank holding companies, located in various
portions of the United States, have substantially increased their provisions
and reserves for loan losses following regulatory examinations. Such
regulatory examinations have focused on loan quality, particularly that of real
estate loans. CBI attempts to reduce the risks of real estate lending through
maximum loan- to-value requirements as well as systematic cash flow and initial
customer credit history analyses. See "SUPERVISION AND REGULATION."
Management believes that the $3,234,000 in allowances at September 30,
1995, or 1.55% of total outstanding loans, net of unearned income, was adequate
to absorb known risks in the portfolio. No assurance can be given, however,
that adverse economic circumstances will not result in increased losses in the
loan portfolio.
NONPERFORMING ASSETS
CBI has policies, procedures and underwriting guidelines intended to
assist in maintaining the overall quality of its loan portfolio. CBI monitors
its delinquency levels for any adverse trends. Nonperforming assets consist of
loans on nonaccrual status, loans that have been renegotiated at more favorable
terms than those for similar credits, real estate and other assets acquired in
partial or full satisfaction of loan obligations and loans that are past due 90
days or more. CBI's policy generally is to place a loan on nonaccrual status
when it is contractually past due 90 days or more as to payment of principal or
interest. A loan may be placed on nonaccrual status at an earlier date when
concerns exist as to the ultimate collections of principal or interest. At the
time a loan is placed on nonaccrual status, interest previously accrued, but
not collected, is reversed and charged against current earnings. Loans that
are contractually past due 90 days or more which are well secured or guaranteed
by financially responsible third parties and are in the process of collection
generally are not placed on nonaccrual status.
Nonperforming assets include nonperforming loans and foreclosed real
estate held for sale. Nonperforming loans include loans classified as
nonaccrual or renegotiated. The table of Nonperforming Assets below shows the
amount of interest foregone from loans placed on nonaccrual. For 1994, the
amount of interest foregone was $579 compared to $45,705 for 1993. No interest
was recognized on nonperforming loans while classified as nonperforming.
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<PAGE> 99
Nonperforming assets at September 30, 1995, were $1,240,000, a decrease
of $338,000, or 21.4%, from September 30, 1994.
During the past few years, the Southeastern region of the country began
experiencing a general improvement in the real estate loan market. In view of
these market conditions, management has closely monitored and will continue to
monitor CBI's real estate and commercial loan portfolio during 1995.
Particular attention will be focused on those credits targeted by the loan
monitoring and review process. Management's continued emphasis is on
maintaining a lower level of nonperforming assets and returning the current
nonperforming assets to an earning status.
Other foreclosed or repossessed assets taken in consideration of loan
amounts due CBI, which consists primarily of repossessed automobiles, are
classified in other assets and as of September 30, 1995 account for less than
0.02% of total assets. At year-end 1994, these assets accounted for less than
0.01% of total assets.
As of September 30, 1995, nonperforming assets were .56% of loans
outstanding plus foreclosed real estate held for sale compared to .81% for
September 30, 1994. Nonaccrual loans were .28% of loans outstanding at
September 30, 1995, compared to the previous level of .32% for period ending
September 30, 1994.
At December 31, 1994, nonperforming assets were .60% of loans
outstanding plus foreclosed real estate held for sale compared to 1.60% for
year-end 1993. Nonaccrual loans were .25% of loans outstanding at year-end
1994 compared to the previous year-end level of .45%.
The following table summarizes nonperforming loans and other real
estate owned at the dates indicated.
NONPERFORMING ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------ -----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccrual loans (1) . . . . . . . . . . . . . $ 621 $ 612 $ 503 $ 812 $ 4,092 $ 1,631 $ 1,873
Renegotiated loans . . . . . . . . . . . . . . 0 0 0 0 0 0 0
Other real estate owned . . . . . . . . . . . . 619 966 687 2,046 1,521 1,179 684
--------- -------- -------- -------- -------- -------- --------
TOTAL NONPERFORMING ASSETS . . . . . . . . . . $ 1,240 $ 1,578 $ 1,190 $ 2,858 5,613 2,810 2,557
========= ======== ======== ======== ======== ======== ========
Amount of loans outstanding at end of year (2). $ 220,962 $194,017 $198,952 $178,600 $160,391 $146,223 $122,570
Total nonperforming loans as a percentage of
total loans . . . . . . . . . . . . . . . . . .28% .32% 0.25% 0.45% 2.55% 1.12% 1.53%
Ratio of total nonperforming assets to loans
outstanding and other real estate owned at
end of period . . . . . . . . . . . . . . . . .56% 0.81% 0.60% 1.60% 3.50% 1.92% 2.09%
Ratio of total nonperforming assets to total
average assets. . . . . . . . . . . . . . . . .28% .38% 0.28% 0.73% 1.54% 0.87% 0.90%
Accruing loans past due 90 days or more . . . . 0 0 0 0 0 0 0
</TABLE>
(1) Interest income that could have been recorded during December 1994 and 1993
related to nonaccrual loans was $1 and $46, respectively, none of which was
included in interest income or net income. All nonaccrual loans were
secured.
(2) Net of unearned income.
Nonperforming assets (other real estate owned and nonaccrual loans) at
December 31, 1994 were $1,190,000, a decrease of $1,668,000 or 58.36% from
December 31, 1993. At December 31, 1994, CBI's ratio of nonperforming assets
to loans outstanding plus other real estate owned was 0.60%, compared to 1.60%
at December 31, 1993. The decrease in nonperforming assets from December 31,
1993 to December 31, 1994 included decreases in other real estate owned of
$1,359,000 and nonaccrual loans of $309,000. As of September 30, 1995,
nonperforming assets were $1,240,000, a decrease of $338,000 or 21.4% from the
same date in 1994. At September 30, 1995, CBI's ratio of nonperforming assets
to loans outstanding plus other real estate owned was 0.56% compared to 0.81%
at September 30, 1994.
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<PAGE> 100
Nonperforming assets are subject to changes in the economy, both nationally
and locally, changes in monetary and fiscal policies, and changes in conditions
affecting various borrowers from CBI's subsidiary bank. No assurance can be
given that nonperforming assets will not in fact increase or otherwise change.
A similar judgmental process is involved in the methodology used to estimate
and establish CBI's allowance for loan losses.
At December 31, 1992, nonaccrual loans included one real estate loan of
$2,500,000 that was required to be included in nonaccrual loans by the OCC due
to weak financial statements of the borrower. The loan was written down to the
appraised value of the underlying real estate, was current and payments were
made in accordance with the terms of the loan agreement. During 1993, this
loan was removed from nonaccrual with the agreement of the OCC due to continued
satisfactory performance in accordance with the terms of the loan. This loan
continued to perform satisfactorily in 1994 and through the first nine months
of 1995.
Nonperforming assets at December 31, 1993 were $2,858,000, a decrease of
$2,755,000 or 49.08% from December 31, 1992. At December 31, 1993, CBI's ratio
of nonperforming assets to total loans outstanding plus other real estate owned
was 1.60%, compared to 3.50% at December 31, 1992. The decrease in
nonperforming assets from December 31, 1992 to December 31, 1993 included
increases in other real estate owned of $525,000 and offset by decreases in
nonaccrual loans of $3,280,000. The decrease in nonaccrual loans was
substantially due to the upgrading of one large real estate loan classified as
nonaccrual at the direction of the OCC in 1992, as previously discussed.
Statement of Financial Accounting Standard No. 114, Accounting by Creditors
for Impairment of a Loan ("FASB No. 114"), is effective for fiscal years
beginning after December 15, 1994. FASB 114 addresses accounting by creditors
for impairment of certain loans, uncollateralized as well as collateralized,
except large groups of smaller-balance homogeneous loans which CBI considers to
be credit card, consumer installment, residential real estate and home equity
loans that are collectively evaluated for impairment, and requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. Management considers a loan impaired when it becomes
probable that there will be a loss resulting from the credit after foreclosure
and liquidation of the collateral or as a result of not receiving payments when
contractually agreed upon, which management believes will result in a loss of
principal or interest. Probable is defined as more than 50% chance that a
future event or events will occur confirming the fact of the loss. Management
identifies its substandard and doubtful loans as the major risk classifications
which are used to aggregate loans for the application of FASB 114. Nonaccrual
loans are loans on which the accrual of interest has been discontinued because
either a reasonable doubt exists as to the full timely collection of interest
or principal, or when a loan becomes contractually past due ninety days or more
with respect to interest or principal. A nonaccrual loan may not have an
anticipated loss associated with it because of the collateral supporting the
credit and therefore not be considered impaired. An impaired loan is
anticipated to have a loss and may or may not be on nonaccrual. It is CBI's
policy to charge off impaired loans in the current period in which a loss is
considered probable. At September 30, 1995 the total recorded investment in
impaired loans was $1,784,926, all of which were measured using the fair value
of the collateral method.
On October 3, 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 118, Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure ("FASB No. 118"),
which amends FASB No. 114 to allow a creditor to use existing methods for
recognizing interest income on an impaired loan. FASB No. 118 requires that
an entity disclose its policy for recognizing interest income or impaired
loans, including how cash receipts are recorded. Interest income on loans
(including impaired loans) is recognized based upon the principal amounts
outstanding. Income on nonaccrual loans and impaired loans is recognized only
to the extent cash is received and where the future collection of principal is
probable. The amount of interest income recognized on a cash basis is not
material at September 30, 1995. At September 30, 1995 the total recorded
investment in impaired loans was $1,784,926, all of which had a related
allowance for credit losses determined in accordance with FASB No. 118 which
was $504,866. None of the recorded investment in impaired loans had related
allowance for credit losses. The average recorded investment in impaired loans
for the nine months ended September 30, 1995 was $1,782,086. The amount of
interest income recognized during the time within the period ending September
30, 1995 that the loans were impaired was
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<PAGE> 101
$124,679. The amount of interest income recognized using the cash-basis method
of accounting during the period ending September 30, 1995 that the loans were
impaired was $22,606.
The impact of FASB No. 114 on the comparability for 1994 and the first none
months of 1995 of the credit risk tables was not considered material for CBI.
DETAILS OF NONACCRUAL LOANS
AT DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Principal balance . . . . . . . . . . . . . . . . . . . . . . . . . . $ 503 $ 812
Interest that would have been recorded under original terms . . . . . 1 46
Interest actually recorded . . . . . . . . . . . . . . . . . . . . . 0 0
</TABLE>
INCOME TAXES
Income taxes for the year 1994 were $2,082,000, 13.03% above the $1,842,000
for 1993 which was 3.66% above the $1,777,000 in 1992. The effective rate in
1994 was 25.75%, 25.18% in 1993, and 26.48 in 1992. The decrease in
rate reflects the increased amount of tax-exempt interest income in 1994 and
1993 compared to 1992. The first nine months of 1995 have resulted in income
tax expense of $1,699,000 as compared to $1,547,000 for the same period in
1994. The effective tax rate for the first nine months of 1995 was 26.3%
compared to 25.7% for the first nine months of 1994.
FDIC INSURANCE ASSESSMENTS
CBI, through its subsidiary BIF member, is subject to FDIC deposit
insurance assessments. During the years ended December 31, 1994, and December
31, 1993, CFI paid $833,133 and $778,338, respectively, in BIF deposit
insurance premiums. See "SUPERVISION & REGULATION--FDIC Insurance Assessments."
EFFECTS OF ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement No. 119,
Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments. The statement requires additional financial disclosure for
derivative financial instruments. The disclosures describe the instruments
purposes and their financial statement presentation. Since the requirements of
the statement are disclosure related in nature, and CFI's exposure to
derivative financial instruments is small, the impact of CFI's financial
statements is not considered to be material.
The Financial Accounting Standards Board issued in December 1991, Statement
No. 107, Disclosures About Fair Value of Financial Instruments. The statement
requires disclosure of the fair values of financial instruments, both assets
and liabilities recognized and not recognized in the statement of financial
position, for which it is practicable to estimate fair value. The statement
also requires disclosure of descriptive information pertinent to estimating the
fair values of the financial instruments. The statement is effective for
financial statements issued for fiscal years ending after December 15, 1995,
for entities with less than $150 million in total assets on the issuance date
of the statement. Disclosures about Fair Value of Financial Instruments are
included in the audited financial statements and are incorporated herein by
reference.
In April 1995, the Financial Accounting Standards Board issued
Statement No. 121, Accounting For the Impairment of Long-Lived Assets and For
Long-Lived Assets to be Disposed. The statement requires an impairment loss to
be recognized when the aggregate of estimated future cash inflows to be
generated by an asset are less than the asset's carrying value. The statement
is effective for years beginning after December 15, 1995.
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<PAGE> 102
Management has not determined the effect of this statement on future financial
statements, but anticipates it to be immaterial.
In May, 1995, the Financial Accounting Standards Board issued Statement
No. 122 Accounting for Mortgage Servicing Rights. The statement requires that
an enterprise engaging in mortgage banking activities recognize as separate
assets rights to service mortgage loans for others. Currently, CBI does not
engage in servicing loans for others and therefore this statement will have no
effect on its financial statements.
In October, 1995, the Financial Accounting Standards Board issued
Statement No. 123 Accounting for Stock-Based Compensation. The statement
requires that transactions with other than employees in which goods or services
are acquired by issuing equity instruments are accounted for using the value of
the instrument issued. This Statement also requires that stock based employee
compensation arrangements be accounted for either by applying the value method
or the intrinsic value method in Opinion 25 of the Accounting Principles Board
(which allows for disclosure only, rather than recognition of certain employee
compensation arrangements). This Statement applies to transactions entered
into after October 15, 1995. Management has not determined the effect of this
Statement on future financial statements, but anticipates it to be immaterial.
CONTINGENCIES AND LEGAL MATTERS
CBI is not a party to, nor is any of its property the subject of, any
material pending legal proceedings, other than ordinary routine proceedings
incidental to the business of banking. CNBL is involved in legal proceedings
primarily involving the recovery of loans previously charged-off or adequately
provided for in the allowance for loan losses. After a review of all
litigation with CBI's legal counsel, CBI's management believes that the
resolution of these matters will not have a material effect on CBI's or CNBL's
financial position, liquidity or operating results. A lawsuit filed against
CBI involving CNBL's Trust Department was settled in 1993 and all expenses
related thereto were accrued in 1992. Two other suits involving the Trust
Department were settled in 1992, resulting in increased legal fees and other
expense in 1992 that did not recur in 1993. Accordingly, these expenses
decreased significantly in 1993.
FASB 107 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
CBI has calculated and reported the fair value of its financial instruments
in accordance with the Statement of Financial Accounting Standards No. 107.
While market value information has been reported for its investment securities
portfolio in prior years based on quoted market prices, this statement also
requires the estimating of fair values for financial instruments with no quoted
market prices. For most instruments with no quoted market values, there are a
variety of judgments which must be approved with a wide variation in reported
results. Management has followed the requirements of the statement and used an
acceptable method to estimate fair value for these instruments. However,
various other values could result if different assumptions were used.
Therefore, management believes it is not relevant and potentially misleading to
compare the amount of appreciation or depreciation of financial instruments
with no quoted values to any other financial institution. Disclosures about
Fair Value of Financial Instruments are included in the audited financial
statements and are incorporated herein by reference.
Although the statement does not prohibit estimating and reporting the fair
value of deposits, management has elected not to estimate a value for its core
deposit portfolio because of reliability and comparability issues.
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<PAGE> 103
SELECTED QUARTERLY INFORMATION
Quarterly Consolidated Income Statement (1)
<TABLE>
<CAPTION>
(Dollars in thousands 1994 Quarters 1993 Quarters
except per share data) --------------------------------------- ---------------------------------------
Fourth Third Second First Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income:
Interest income . . . . . . . . . $ 8,182 $ 7,862 $ 7,744 $ 7,228 $ 7,244 $ 7,211 $ 7,225 $ 7,002
Interest expense. . . . . . . . . (3,418) (3,215) (2,959) (2,863) (2,878) (2,949) (2,963) (2,995)
------- ------- ------- ------- ------- ------- ------- -------
Net interest income . . . . . . . 4,764 4,647 4,785 4,365 4,366 4,262 4,262 4,007
------- ------- ------- ------- ------- ------- ------- -------
Provision for loan losses . . . . (77) (201) (172) (150) (400) (225) (225) (225)
------- ------- ------- ------- ------- ------- ------- -------
Noninterest income:
Service charges on deposit
accounts. . . . . . . . . . . 272 282 269 284 297 299 274 292
Trust income. . . . . . . . . . 177 174 156 209 158 143 145 142
Other income. . . . . . . . . . 100 88 68 95 100 90 94 94
Investment securities gains
(losses). . . . . . . . . . . (44) 0 (178) 54 55 111 59 220
------- ------- ------- ------- ------- ------- ------- -------
Total noninterest income . . . 505 544 315 642 610 643 572 748
------- ------- ------- ------- ------- ------- ------- -------
Noninterest expenses:
Salaries and employee
benefits. . . . . . . . . . . 1,348 1,334 1,342 1,318 1,251 1,227 1,264 1,303
Occupancy expense . . . . . . . 312 269 184 313 325 271 255 315
Equipment expense . . . . . . . 229 220 252 210 181 191 200 184
Stationery and supplies . . . . 121 72 98 65 102 54 57 60
Advertising . . . . . . . . . . 97 60 66 62 81 61 68 65
Insurance, including
regulatory assessments. . . 228 228 218 217 206 214 206 205
Postage . . . . . . . . . . . . 47 48 51 49 41 42 40 47
Taxes (2) . . . . . . . . . . . 51 18 70 66 49 56 52 49
Directors' fees . . . . . . . . 63 66 69 67 66 65 66 69
Trust department expense . . . 31 44 26 35 28 36 27 27
Other expense . . . . . . . . . 220 177 117 279 215 167 154 255
Total noninterest expenses. . . (2,747) (2,536) (2,493) (2,681) (2,545) (2,384) (2,389) (2,579)
Income before income taxes . . . 2,445 2,454 2,435 2,176 2,031 2,296 2,220 1,951
Provision for income taxes . . . (901) (904) (896) (803) (739) (839) (815) (632)
------- ------- ------- ------- ------- ------- ------- -------
Net income before cumulative
effect of a change in
accounting principle. . . . . . 1,544 1,550 1,539 1,373 1,292 1,457 1,405 1,319
Cumulative effect on prior years
(to December 31, 1992) of
changing method of account-
for income taxes. . . . . . . . 0 0 0 0 0 0 0 255
------- ------- ------- ------- ------- ------- ------- -------
Net income. . . . . . . . . . . . $1,544 $1,550 $1,539 $1,373 $1,292 $1,457 $1,405 $1,574
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
-94-
<PAGE> 104
<TABLE>
<CAPTION>
(Dollars in thousands except
per share data) 1994 Quarters 1993 Quarters
Fourth Third Second First Fourth Third Second First
---------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income before
cumulative effect of a
change in accounting
principle . . . . . . . . . $.38 $.38 $.38 $.34 $.32 $.36 $.35 $.32
Cumulative effect on prior
years (to December 31,
1992) of change in
method of accounting
for income taxes) . . . . . 0 0 0 .06 0 0 0 .06
Net income $.38 $.38 $.38 $.40 $.32 $.36 $.35 $.38
==== ==== ==== ==== ==== ==== ==== ====
Cash dividends declared
on common stock . . . . . . $.35 $.00 $.00 $.00 $.31 $.00 $.00 $.00
</TABLE>
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Taxes other than payroll, real estate and income taxes.
-95-
<PAGE> 105
BUSINESS OF CBI
CBI is a Florida corporation that is registered with the Reserve as a
"bank holding company" under the BHC Act. Through its banking subsidiary, CBI
provides a wide range of commercial and retail banking services, trust services
and various other financial services in central Florida. Its principal
subsidiary is CNBL, a national banking association that is a member of the
FDIC. CNBL currently operates six full service banking offices in Lake County,
Florida, one in Sumter County, Florida, and one in Marion County, Florida.
While the Merger is CBI's first acquisition, CBI has continued to
evaluate acquisition opportunities from time to time. As a result,
acquisition discussions and, in some cases, negotiations may take place.
Future acquisitions involving cash, debt or equity securities may arise.
Acquisitions may involve the payment of a premium over book and market values
and, therefore, some dilution of CBI's book value and/or net income per common
share may occur in connection with any such future acquisitions. In addition,
CBI has been approached from time to time by entities seeking to discuss a
possible acquisition of CBI, but to date, CBI has not entered into any
negotiations with any such entities. CBI believes it is likely that because if
its size, market position and location, that it may continue to receive such
inquiries. CBI's long-term strategic plan is to remain an independent
institution, but CBI will continue to evaluate proposals consistent with the
CBI Board's fiduciary duties. The results of any such discussions and
evaluations cannot be predicted.
CBI's primary market area, Lake County, has had a 45% growth in
population from 104,870 in 1980 to 152,104 in 1990. The population increased a
further 12.5% from 1990 to 1994 to 171,168.
CBI's market share followed the same lines of growth and even exceeded
the market shares of the competing banks by the end of 1994. CBI was the third
largest bank in Lake County in 1990 with 12.99% of individual, partnership and
corporate ("IPC") deposits as compared to the second highest market share of
17.52% and the highest market share of 18.22%. CBI then achieved the highest
market share at 18.30% by the end of 1994 as compared to the second highest
market share of 18.13% and the third highest market share of 17.14% CBI
attributes this growth in market share to superior customer service and product
compatibility with its customers needs.
The economy for Lake County has been stable over the last decade due
mostly to the influx of retirement aged residents. Industry has been in a
transitional phase from agriculture, including citrus production to various
other industries, including aluminum extrusion manufacturing, fruit packaging
products, thermometer manufacturing and food products processing.
The unemployment rate for Lake County has decreased from 8.7% in 1992
to 5.8% in 1995. The reduction in the unemployment rate for those periods is
mostly attributable to the transition of seasonal agrarian help to the
manufacturing and services industries. Compared to the region, Lake County now
has high resident concentrations of blue-collar skills, which include precision
production, machine operators, and general laborers.
Household effective buying income increased 92.5% from $15,790 in 1980
to $30,397 in 1990, and grew a further $1,087 to $31,484 by 1993. The medium
home for Lake County increased in value from $67,789 in 1990 to $72,248 in
1992.
As of February 16, 1996, CBI had 169 full-time employees and 16
part-time employees. Subject to certain initial vesting periods, all full-time
employees were eligible to participate in CBI's health and welfare plans and
the CBI profit sharing plan and pension plan. CBI believes that relations
between CBI and its employees are generally good.
For additional information regarding CBI's business activities refer
to "AVAILABLE INFORMATION," "--Selected Financial Data," "CBI's MANANGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
"SUPERVISION AND REGULATION." CBI's lending activities are discussed in detail
at "CBI's MANANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Loan Portfolio."
-96-
<PAGE> 106
CBI PROPERTIES
The main office of CNBL is located in a two-story modern building with
approximately 26,400 square feet, which is owned by CNBL. The building,
located at 1211 North Boulevard West, Leesburg, Florida, has six drive-through
windows and two walk-up banking windows. Across the street is a 1,000 square
foot building which accommodates eight drive-through tellers, one of which is
an ATM, and one walk-up window. CBI maintains its operations, including its
executive offices and trust facilities, in an adjacent three-story modern
building of approximately 43,600 square feet, which is connected to CNBL's main
office building by a walk through at the second story level.
As of December 1, 1995, CBI owned all of its offices, which had a net
book value of approximately $4,853,000. CNBL's branch offices are described as
follows:
Fruitland Park Branch, located at the corner of U. S. 27, 441 and Palm
Street, Fruitland Park, Florida, consists of a one story building with
approximately 3,000 square feet. Four drive-through windows are at this
location, one of which is an ATM.
Lake Square Mall Branch, located at 7000 South U. S. Highway 441, is a
one story building with approximately 3,600 square feet located on a land
lease. Six drive-through windows are at this location, one of which is an ATM.
The Villages Branch, located at North U. S. Highway 441, Lady Lake,
Florida, is a one story building with approximately 5,000 square feet. Six
drive-through windows are at this location, one of which is an ATM.
Eustis Branch, located at 200 Orange Avenue, Eustis, Florida, is a
leased building with approximately 2,600 square feet. There is one
drive-through window, and one walk-up ATM at this location.
Tavares Branch, located at 359 East Burleigh Boulevard, Tavares,
Florida, is a leased building with approximately 1,250 square feet. There are
no drive-through windows at this location, however, there is one free-standing
ATM located in the front parking lot.
Wildwood Branch, located at 300 South Main Street, Wildwood, Florida,
is a one story building with 6,298 square feet. There are four drive-in
windows, and one walk-up ATM at this location.
Summerfield Branch, located at 1701 Southeast 109th Avenue,
Summerfield, Florida. This office was opened in October 1995 and has
approximately 4,600 square feet with five drive-in windows and one drive up
ATM.
Ocala Branch, located at 1515 East Silver Springs Boulevard, Suite
E-170, is an office located in a strip shopping complex with 1,000 square feet
and is currently serving as a loan production office. There is one lobby
teller station.
-97-
<PAGE> 107
MANAGEMENT OF CBI
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides certain information regarding CBI's
directors and executive officers. Each of the following persons has been in
their current occupation for the last five years, except where otherwise noted.
<TABLE>
<CAPTION>
AGE AS OF
FEBRUARY 15,
NAME 1996 POSITIONS
---- ---------------- ---------
<S> <C> <C>
Clifton L. Bridges, M.D. (1) 51 Chairman of the Board of Directors and Director
Kenneth W. Mullis (2) 52 President, Chief Executive Officer and Director
Michael T. Killingsworth 38 Senior Vice President, Chief Financial Officer and
Secretary of CBI
Bobby A. Sullivan (3) 60 Director
Douglas W. Braun (4) 46 Director
W. Thomas Brooks (5) 46 Director
Thomas N. Grizzard (6) 56 Director
W.F. Herlong, Jr. (7) 62 Director
Wendell F. Husebo (8) 68 Director
Walter S. McLin (9) 60 Director
Linda Spradlin (10) 57 Director
Ferrell D. Young, D.V.M. (11) 54 Director
- -------------------------------------------
</TABLE>
(1) Dr. Bridges is a facial plastic surgeon and is President of Bridges,
Hardy & Milstead, M.D., P.A. Dr. Bridges became Chairman of the Board in March
1995.
(2) Mr. Mullis has served as President and Chief Executive Officer of CBI
and CNBL since 1990.
(3) Mr. Sullivan retired as Chief Financial Officer from CBI December 31,
1995. Mr. Sullivan will remain a director of CBI.
(4) Mr. Braun has been President of Besco Electric Supply Co. since 1983,
an electrical wholesale business located in Leesburg, Florida.
(5) Mr. Brooks is a certified public accountant and is President of
Brooks, Wiley, Young, Padgett & Kleiser, P.A. He is a director of Foliage
Design Systems Franchise Company, Boys and Girls Club of Lake County and the
Leesburg High School Foundation.
(6) Mr. Grizzard is a Realtor and is President of Tom Grizzard, Inc., a
realty company located in Leesburg, Florida. Mr. Grizzard is a Trustee of the
Beverly Grizzard Residual Trust. He manages Leesburg Lake Shore Mobile Home
Park and is a developer of Beverly Harbors Condominiums.
(7) Mr. Herlong is an investor in stocks, bonds and real estate.
Formerly, he was Vice President of CNBL in Marketing & Business Development.
Mr. Herlong is a limited partner in A.S. Herlong Ltd., a real estate holding
company located in Leesburg, Florida, and is a travel consultant for AAA Auto
Club South.
(8) Mr. Husebo is Chairman of Husebo Advertising/Public Relations, Inc.,
in Leesburg, Florida, a regional agency he organized in 1962. He has been
active in business, civic and church activities in Leesburg since 1951.
-98-
<PAGE> 108
(9) Mr. McLin is an attorney-at-law and has practiced in Lake County,
Florida since 1962. He is President of McLin, Burnsed, Morrison, Johnson &
Robuck, P.A. He currently serves as a member of the Board of Directors of Blue
Cross and Blue Shield of Florida, Inc. and Florida Combined Life Insurance
Company, Inc.
(10) Mrs. Spradlin is President of Fox Fire Farms, Inc., a horse farm
located in Leesburg, Florida. She is a Trustee of Poinsettia Land Trust, a
real estate holding company.
(11) Dr. Young is a veterinarian. He is owner and practitioner of
Northgate Animal Hospital d/b/a Ferrell D. Young, D.V.M., P.A., Leesburg,
Florida and Animal Clinic of Lady Lake, Florida. He has been in practice for
26 years. He is a member of FVMA, AVMA, and is Secretary/Treasurer of Lake
County Veterinary Emergency Clinic.
(12) Mr. Killingsworth was Vice President and Cashier of Southeastern Bank,
Darien, Georgia until February 28, 1995, at which time he joined CBI.
Frank S. Bouis, a director of CBI and CNBL resigned from the CBI Board of
Directors on January 9, 1996, after indicating that he was dissatisfied with
his role on the Board.
-99-
<PAGE> 109
OWNERSHIP OF CBI COMMON STOCK
As of January 31, 1996, CBI s records indicated the following number of
shares were beneficially owned by (i) all persons who own beneficially 5% or
more of the CBI Common Stock, (ii) each person who is a director or an executive
officer of CBI and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Ownership Percent of CBI Common Stock
Name of of CBI Common Stock Percent to be Outstanding at
Beneficial Owner (Number of Shares) of Class (%)(1) the Effective Time (%)(2)
- ---------------- ------------------ --------------- -------------------------
<S> <C> <C> <C>
Clifton L. Bridges, M.D. (5) 145,767 3.6 3.3
Kenneth W. Mullis (6) 22,708 * *
Bobby A. Sullivan (7) 11,156 * *
Douglas W. Braun (8) 68,471 1.7 1.5
W. Thomas Brooks (9) 27,137 * *
Thomas N. Grizzard(10) 20,197 * *
W.F. Herlong, Jr. (11) 31,880 * *
Wendell F. Husebo (12) 67,649 1.7 1.5
Walter S. McLin (13) 65,442 1.6 1.5
Linda Spradlin (14) 185,409 4.6 4.2
Ferrell D. Young, D.V.M. (15) 49,965 1.2 1.1
Directors and executive 695,566 17.2 15.6
officers as a group
(11 persons)(3)
</TABLE>
* Less than 1%.
(1) Based on 4,047,643 shares of CBI Common Stock outstanding as of
January 31, 1996.
(2) Based on 4,472,643 shares of CBI Common Stock outstanding as of the
Effective Time of the Merger, assuming no CFB dissenting shareholders.
(3) The percentage of CBI Common Stock that will be owned by CBI directors
at the Effective Time does not include 65,900 shares of CBI Common
Stock that Terry E. Trexler will receive at the Merger. Mr. Trexler
is expected to be elected to the CBI and CNBL Boards of Directors
following the Effective Time.
(4) Information relating to beneficial ownership of Common Stock by
directors is based upon information furnished by each person using
"beneficial ownership" concepts set forth in rules of the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Under such rules, a person is deemed to
be a "beneficial owner" of a security if that person has or shares
"voting power," which includes the power to vote or direct the voting
of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. The person
is also deemed to be a beneficial owner of any security of which that
person has a right to acquire beneficial ownership within 60 days.
Under such rules, more than one person may be deemed to be a
beneficial owner of the same securities, and a person may be deemed to
be a beneficial owner of securities as to which he or she may disclaim
any beneficial ownership. Accordingly, nominees are named as
beneficial owners of shares as to which they may disclaim any
beneficial interest. Except as indicated in other notes to this table
describing special relationships with other persons and specifying
shared voting or investment
-100-
<PAGE> 110
power, directors possess sole voting and investment power with
respect to all shares of Common Stock set forth opposite their names.
(5) Includes 1,341 shares held by Dr. Bridges' individual retirement
account and 52,146 shares (over which Dr. Bridges exercises shared
voting and investment control) held jointly with his wife, Glenda J.
Bridges. Also includes 936 shares (over which Dr. Bridges exercises
no voting or investment control) held by his wife's individual
retirement account, 14,576 shares (over which Dr. Bridges exercises no
voting or investment control), owned jointly by Dr. Bridges' wife and
her mother, 4,167 shares held by Dr. Bridges as custodian for his
minor children, and 69,800 shares held by the Bridges, Hardy &
Milstead, M.D., P.A., Money Purchase Pension Plan Trust, as to which
shares Dr. Bridges disclaims beneficial ownership.
(6) Includes 10,000 shares (over which Mr. Mullis exercises shared voting
and investment control) owned jointly with his wife, Linda L. Mullis,
and 9,605 shares owned by Mr. Mullis' individual retirement account.
Does not include 11,025 shares subject to options granted to Mr.
Mullis by CBI pursuant to his employment, which options are not
exercisable within 60 days.
(7) Includes 1,975 shares held by Mr. Sullivan's individual retirement
account. Also includes 84 shares (over which Mr. Sullivan exercises
shared voting and investment control) owned jointly with Mr.
Sullivan's son, Keith A. Sullivan, 624 shares (over which Mr. Sullivan
exercises shared voting and investment control) owned jointly with Mr.
Sullivan's son, Scott J. Sullivan, and 1,974 shares (over which Mr.
Sullivan exercises no voting or investment control) owned by Mr.
Sullivan's wife's individual retirement account, as to which shares
Mr. Sullivan disclaims beneficial ownership.
(8) Includes 200 shares (over which Mr. Braun exercises shared voting and
investment control) held by Mr. Braun jointly with his wife. Also
includes 14,550 shares held by Besco Electric Supply, Inc. and 51,444
shares held by the Besco Electric Supply, Inc. Pension Plan, as to
which shares Mr. Braun disclaims beneficial ownership.
(9) Includes 3,073 shares held by Mr. Brooks' individual retirement
account and 21,464 shares (over which Mr. Brooks exercises shared
voting and investment control) held jointly with his wife, Ann H.
Brooks. Also includes 400 shares held by Mr. Brooks as custodian for
his minor daughter, Amy Elizabeth Brooks, and 200 shares (over which
Mr. Brooks exercises no voting or investment control) owned directly
by Mr. Brooks' son, Brian Chase Brooks, as to which shares Mr. Brooks
disclaims beneficial ownership.
(10) Includes 2,840 shares held by Mr. Grizzard's individual retirement
account and 6,429 shares held in trust for Mr. Grizzard (over which
Mr. Grizzard exercises sole voting and investment control). Also
includes 1,350 shares (over which Mr. Grizzard exercises no voting or
investment control) held by Mr. Grizzard's wife's individual
retirement account, 6,429 shares held in trust for Mr. Grizzard's
wife, Linda K. Grizzard (over which Mr. Grizzard exercises no voting
and investment control) and 3,149 shares (over which Mr. Grizzard
exercises shared voting and investment control) held by Mr. Grizzard
and his sister, Sally G. Spence Reeves, as Trustees of the Beverly
Grizzard Residuary Trust, as to which shares Mr. Grizzard disclaims
beneficial ownership.
(11) Includes 300 shares held by Mr. Herlong as Trustee of the Louise B.
Herlong Trust (Mr. Herlong's mother) and 300 shares held by Mr.
Herlong as Trustee of the W. Fred Herlong Trust (Mr. Herlong's
father), as to all of which shares Mr. Herlong disclaims beneficial
ownership.
(12) Includes 315 shares held by Mr. Husebo in trust for his minor
granddaughters, 7,761 shares held by Husebo Advertising/Public
Relations, Inc., and 27,168 shares held by the Husebo
Advertising/Public Relations, Inc. Profit Sharing Plan, as to all of
which shares Mr. Husebo disclaims beneficial ownership.
(13) Includes 19,869 shares held by Mr. McLin's individual retirement
account. Also includes 19,578 shares (over which Mr. McLin exercises
no voting or investment control) held by Mr. McLin's wife, Gwen F.
-101-
<PAGE> 111
McLin, and 1,800 shares held in Mrs. McLin's individual retirement
account, as to which shares Mr. McLin disclaims beneficial ownership.
(13) Includes 161,055 shares held in two trusts for Mrs. Spradlin's mother,
Margaret W. Smith, of which Mrs. Spradlin serves as trustee, 6,440
shares held in trust for Mrs. Spradlin's son, Michael William
Spradlin, of which Mrs. Spradlin serves as trustee, 1,766 shares held
in two trusts for Mrs. Spradlin's grandchildren, Brittany Lyne
Spradlin and Kyle William Spradlin, of which Mrs. Spradlin serves as
trustee, 4,075 shares held in trust for Mrs. Spradlin's niece,
Elizabeth Jackson, of which Mrs. Spradlin serves as trustee, and 4,473
shares held in five trusts for Mrs. Spradlin's grand nephews and grand
niece, Aaron Loesch, Daniel Roe, Michael Roe, Samuel Roe and Anna
Jackson, of which Mrs. Spradlin serves as trustee, as to all of which
shares Mrs. Spradlin disclaims beneficial ownership.
(15) Includes 3,015 shares held by Dr. Young's individual retirement
account. Also includes 9,999 shares held in three trusts for Dr.
Young's children, Ferrell Durham Young, Jr., Lisa Marie Young, and
Beau Hartman Young, of which Dr. Young serves as trustee.
-102-
<PAGE> 112
COMPENSATION OF CBI EXECUTIVE OFFICERS
Under rules established by the Securities and Exchange Commission, CBI is
required to provide certain data and information in regard to the compensation
and benefits provided to its chief executive officer and other executive
officers, including the executive officers with compensation in excess of
$100,000 (collectively, the President/Chief Executive Officer and the Chief
Financial Officer/Chief Operations Officer of CBI are referred to as the "named
executive officers"). The disclosure requirements for the named executive
officers include the use of tables and a report explaining the rationale and
considerations that led to fundamental executive compensation decisions
affecting these individuals. The Compensation Committee has prepared the
following report for inclusion in this Proxy Statement/Prospectus in response
to such requirements.
The following table sets forth certain elements of compensation of the
named executive officers of CBI or CNBL for the periods indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
(a) (b) (c) (d) (e) (i)
Name Other Annual
and Compensation All Other
Principal Position Year Salary ($) Bonus ($) ($) (1)Compensation ($)
<S> <C> <C> <C> <C> <C>
Kenneth W. Mullis 1995 $155,800 $70,000 N/A $19,442
President and Chief
Executive Officer of 1994 $147,700 $60,000 N/A $19,364(2)
CBI and CNBL 1993 $140,000 $50,000 N/A $13,665
Bobby A. Sullivan 1995 $116,000 $30,000 N/A $15,957
Senior Operations
Officer, Chief 1994 $110,000 $30,000 N/A $15,299 (2)
Financial Officer
and Secretary of 1993 $105,000 $25,000 N/A $10,506
CBI; Senior Vice
President and
Cashier of CNBL
(through December
31, 1995)
</TABLE>
- --------------------------------
(1) CNBL furnishes automobiles to and pays club membership dues for certain of
its officers. However, the aggregate amount of personal benefits does not
exceed $10,000 for any one person.
(2) Includes contributions by CBI to the Profit Sharing Plan on behalf of the
named executive officers in the following amounts for 1995: Mr. Mullis --
$18,382, and Mr. Sullivan -- $14,216. Also includes insurance premiums paid by
CBI on term life insurance over $50,000 covering the named executive officers
in the following amounts for 1995: Mr. Mullis -- $1,060, and Mr. Sullivan --
$1,741.
-103-
<PAGE> 113
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table contains information about option awards made to the
named executive officers during the Company's fiscal year ended December 31,
1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
TERM
- ----------------------------------------------------------------------------------- ----------------------------------
(A) (B) (C) (D) (E) (F) (G) (H)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#)(1) Fiscal Year ($/Share)(2) Date 5% ($) 10% ($) 0%
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth W. Mullis 3,000 26.7% $10.51 12/31/05 $42,099 $67,035 $25,845
Bobby A. Sullivan 2,000 17.8% $10.51 12/31/96(3) $28,066 $44,690 $17,230
- ---------------------------
</TABLE>
(1) Under the authority granted the Board of Directors through the
Company's 1994 Stock Option and Stock Appreciation Rights Plan (the
"1994 Plan"), seven officers were granted the opportunity to earn a
total of 56,250 shares during a period from December 31, 1994 to April
25, 2006. The Board installed certain criteria regarding
profitability, asset quality and asset growth parameters that must be
met in order for the options to be granted each year. Once earned and
granted, a two year vesting period is required before the option can
be exercised. A copy of the stock option agreement under the 1994
Plan may be obtained at no expense from the Company upon written
request. The options disclosed in this table were granted on December
31, 1995.
(2) Book value on the date of the grant.
(3) Bobby A. Sullivan has been granted a total of 4,000 shares under the
1994 Plan. Mr. Sullivan must exercise all of such 4,000 options
within one year of his retirement (i.e. December 31, 1996).
-104-
<PAGE> 114
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Options were granted during 1995 to the named executive officers. This
table indicates the number of shares covered by both exercisable and
non-exercisable options as of December 31, 1995. Also reported are the values
for "in-the-money" options, which represent the positive spread between the
exercise price of any such existing options and the year-end price of CBI's
Common Stock.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS AT FY-
SHARES OPTIONS/SARS AT FY-END (#) END ($)
ACQUIRED ON VALUE REALIZED EXERCISABLE (E)/ EXERCISABLE (E)/
NAME EXERCISE (#) ($) UNEXERCISABLE (U) UNEXERCISABLE (U)
<S> <C> <C> <C> <C>
Kenneth W. Mullis 0 N/A Options: Options:
0(E) N/A(E)
11,025(U)(1) $145,861(U)
6,000(U)(2) $55,200
SARs: SARs:
0(E) N/A(E)
0(U) N/A(U)
Bobby A. Sullivan 0 N/A Options: Options:
0(E) N/A (E)
4,000(U)(2) $36,800
SARs: SARs:
0(E) N/A (E)
0(U) N/A (U)
</TABLE>
- -------------------------
(1) In connection with his employment with CBI on July 9, 1990, Mr. Mullis was
granted a stock option (without tandem SARs) to purchase 10,000 shares of
Common Stock of CBI. Adjustments to such options due to stock dividends
declared and paid since that time have increased the option to cover 11,025
shares. Such option becomes exercisable upon the earlier to occur of (i) July
9, 2000 if Mr. Mullis is then still employed by CBI or CNBL, (ii) Mr. Mullis'
death while he is still so employed, or (iii) a sale, merger, stock exchange or
similar disposition of at least 51% of the outstanding stock of CBI during such
time as Mr. Mullis is employed by CBI or CNBL (a "Change in Control"). The
option expires upon the earlier to occur of (w) Mr. Mullis' termination of
employment prior to July 9, 2000 (other than by reason of death or a Change in
Control), (x) July 9, 2005, (y) 180 days after Mr. Mullis' death, or (z) 90
days following notice to Mr. Mullis of a Change in Control.
(2) Shares granted under Citi-Bancshares, Inc. 1994 Stock Option and Stock
Appreciation Rights Plan.
PENSION PLAN
CNBL maintains a noncontributory, tax-qualified defined benefit pension plan
(the "Pension Plan") for the benefit of eligible employees of CNBL. The
Pension Plan provides for the payment of fixed annual benefits upon an
employee's normal retirement at age 65. Benefits may also be paid upon early
retirement prior to the normal retirement age as further described below.
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The following table sets forth, in straight life annuity amounts, the
estimated annual benefits payable upon retirement to persons in the specified
compensation and years-of-service classifications under the present provisions
of the Pension Plan. The Pension Plan amounts are not offset by Social Security
benefits.
<TABLE>
<CAPTION>
YEARS OF SERVICE (1)
COVERED 15 20 25 30 35
COMPENSATION
<S> <C> <C> <C> <C> <C>
$ 15,000 $ 4,500 $ 6,000 $ 7,500 $ 9,000 $ 9,000
$ 25,000 7,500 10,000 12,500 15,000 15,000
$ 35,000 10,500 14,000 17,500 21,000 21,000
$ 50,000 15,000 20,000 25,000 30,000 30,000
$ 75,000 22,500 30,000 37,500 45,000 45,000
$ 100,000 30,000 40,000 50,000 60,000 60,000
$ 125,000 37,500 50,000 62,500 75,000 75,000
$ 150,000 45,000 60,000 75,000 90,000 90,000
</TABLE>
(1) Assumes retirement at age 65 in 1995 with the number of credited years
of service shown in the table. The maximum compensation recognizable in
accordance with Code Section 401(a)(17)(B) for plan years beginning January 1,
1995 is $150,000. In addition, the maximum annual benefit payable under the
Pension Plan pursuant to Code Section 415 is $120,000.
All employees become eligible to participate in the Pension Plan upon
the date of employment with CNBL. During 1995, annual benefits under the
Pension Plan were based upon the employee's years of service (up to a maximum of
30 years) and final average compensation. "Final average compensation" for this
purpose means the average annual salary for the five consecutive years of the
last ten years of employment in which a participant had the highest salary.
Under the Pension Plan's present provisions, the normal retirement
benefit at age 65 is equal to 2% of a participant's final average compensation
times years of service, up to a maximum of 30 years. The normal retirement
benefit is reduced by 1/15 for each of the first five years and 1/30th for each
of the next five years by which the date that the payments commence precedes the
participant's normal retirement date. Benefits are distributed at retirement,
death or termination of employment in the form of a joint and survivor annuity,
installment payments, lump sum payment, or alternate form of annuity as elected
by the participant (with the consent of the spouse). Benefits under the Pension
Plan become fully vested at the earlier of normal retirement age (age 65) or the
completion of five years of service.
With reference to the above Summary Compensation Table, the 1995 covered
compensation of the named executive officers for purposes of the Pension Plan
included the cash amounts included in the 1995 Salary column of the Summary
Compensation Table. The 1995 covered compensation of each of the named
executive officers for purposes of the Pension Plan is as follows: Mr. Mullis --
$150,000, and Mr. Sullivan --$116,000. The estimated credited years of service
of each of the named executive officers as of December 31, 1995 is as follows:
Mr. Mullis -- 6 years, and Mr. Sullivan -- 30 years.
CBI COMPENSATION COMMITTEE INTERLOCKS and INSIDER PARTICIPATION
Walter S. McLin, W. Thomas Brooks, Clifton L. Bridges and Thomas N. Grizzard
are the current members of the Compensation Committee.
Walter S. McLin, a director of CBI and CNBL and Chairman of the
Compensation Committee, is the President and a principal shareholder of McLin,
Burnsed, Morrison, Johnson & Robuck, P.A. ("McLin, Burnsed"),
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a law firm located in Leesburg, Florida. McLin, Burnsed, as general
counsel to CBI, performed various legal services for CBI and CNBL during the
fiscal year ended December 31, 1995, and received approximately $113,239 for
such services. This excludes fees paid by Bank customers in transactions in
which McLin, Burnsed represented CNBL.
Douglas W. Braun, a director of CBI and CNBL, is the President of Besco
Electric Supply Co., an electrical wholesale business located in Leesburg,
Florida. CNBL purchased from Besco Electric Supply Co. various supplies
totaling $2,351 during the fiscal year ending December 31, 1995.
Wendell F. Husebo, a director of CBI and CNBL and Chairman of CNBL's
Trust Committee, is the Chairman and a principal shareholder of Husebo
Advertising/Public Relations, Inc. ("Husebo Advertising"), an advertising firm
located in Leesburg, Florida. Husebo Advertising performed various advertising
services for CBI and CNBL during the fiscal year ended December 31, 1995, and
received approximately $335,028 for such services, which included actual costs
of advertising paid on behalf of CBI by Husebo Advertising for television,
radio, newspaper, billboard and specialty items.
DIRECTOR COMPENSATION
While CBI directors currently do not receive compensation for attendance
of meetings of the CBI Board of Directors actually attended, directors who are
not employees of CBI receive an annual retainer of $5,000. CNBL directors who
are not employees of CNBL currently receive $300 in cash for every meeting of
the CNBL Board of Directors actually attended, $100 for every committee meeting
actually attended and an annual retainer of $10,000. CBI evaluates its
compensation practices generally on an annual basis, and its compensation to
directors may change
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS OF CBI
Several of CBI's directors, officers and their affiliates, including
corporations and firms of which they are officers or in which they and/or their
families have an ownership interest, are customers of CBI and CNBL. These
persons, corporations, and firms have had transactions in the ordinary course
of business with CBI and CNBL, including borrowings of material amounts. All of
CBI's and CNBL's transactions with CBI's and CNBL's directors, officers and
their affiliates, in the opinion of management, were on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unaffiliated persons and did not involve more
than the normal risk of collectibility or present other unfavorable features.
CBI and CNBL expect to have such transactions on similar terms with its
directors, officers, and their affiliates in the future. The aggregate amount
of loans outstanding by CNBL to directors, executive officers, and related
parties of CBI or CNBL as of December 31, 1994, was approximately $2,967,543,
which represented approximately 8.73% of the consolidated shareholders' equity
on that date.
For information concerning specific transactions and business relationships
between CBI or CNBL and certain of its directors or executive officers, see
"Compensation Committee Interlocks and Insider Participation."
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DESCRIPTION OF CBI CAPITAL STOCK
The authorized capital stock of CBI consists of 10,000,000 shares of Common
Stock, of which 4,047,643 shares were issued and outstanding as of September
30, 1995. No other series or class of capital stock is authorized. Holders of
CBI Common Stock are entitled to receive such dividends as may be declared by
the CBI Board out of funds legally available therefore, and, in the event of
liquidation or dissolution, to receive the net assets of CBI remaining after
payment of all liabilities. Each holder of CBI Common Stock is entitled to one
vote per share of CBI Common Stock held on matters for which CBI shareholders
are entitled to vote. CBI shareholders are not entitled to any preemptive
rights, and each share of CBI Common Stock currently outstanding or to be
issued in connection with the Merger is or will be fully paid and
nonassessable.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Corporations incorporated under the laws of the State of Florida such as
CBI and CFB are subject to several anti- takeover provisions under Florida law
that apply to public corporations organized under Florida law, unless the
corporation has elected to opt out of those provisions in its articles of
incorporation or bylaws. Neither CBI nor CFB has acted to opt out of those
provisions. The FBCA prohibits the voting of shares in a publicly-held Florida
corporation that are acquired in a "control share acquisition" unless the
holders of a majority of the corporation's voting shares (exclusive of shares
held by officers of the corporation, inside directors or the acquiring party)
approve the granting of voting rights as to the shares acquired in the control
share acquisition or unless the acquisition is approved by the corporation's
board of directors. A "control share acquisition" is defined as an acquisition
that immediately thereafter entitles the acquiring party to vote in the
election of directors within each of the following ranges of voting power: (i)
one-fifth or more but less than one-third of such voting power; (ii) one-third
or more but less than a majority of such voting power; and (iii) more than a
majority of such voting power.
The FBCA also contains an "affiliated transaction" provision that prohibits
a publicly-held Florida corporation form engaging in a broad range of business
combinations or other extraordinary corporate transactions with an "interested
shareholder" unless (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder,
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years or (iii) the consideration to
be paid to the corporation's shareholders satisfies certain fair price and form
requirements or (iv) the transaction is approved by the holders of two-thirds
of the corporation's voting shares other than those owned by the interested
shareholder. An interested shareholder is defined as a person who together
with affiliates and associates beneficially owns more than 10% of the
corporation's outstanding voting shares.
CERTAIN DIFFERENCES IN THE RIGHTS OF CBI AND CFB SHAREHOLDERS
At the Effective Time, CFB shareholders, other than a Dissenting
Shareholder, automatically will become shareholders of CBI, and their rights as
shareholders will be determined by CBI's Certificate of Incorporation and
Bylaws. The following is a summary of the material differences in the rights of
shareholders of CBI and CFB. CBI is a Florida corporation having its principal
office in Leesburg, Florida, and CFB is a Florida corporation having its
principal office in Ocala, Florida. As both CBI and CFB are incorporated under
the laws of the State of Florida, each of CBI and CFB are governed by the
provisions of the FBCA. The following sets forth certain differences between
the rights of a CBI shareholder under CBI's Articles of Incorporation and
Bylaws and the rights of a CFB shareholder under CFB's Articles of
Incorporation and Bylaws. This summary is not intended to be, and should not be
viewed as a complete discussion of such differences, and is qualified in its
entirety by reference to the FBCA, and the Articles of Incorporation and Bylaws
of each corporation. The following differences may be determined in full by
reference to the Articles of Incorporation and Bylaws of CBI and CFB.
AUTHORIZED CAPITAL STOCK
CFB. CFB is authorized to issue 750,000 shares of CFB Common Stock, $.10
par value. As of February 15, 1996, (i) 304,480 shares of CFB Common Stock
were issued and outstanding and (ii) 18,000 shares of CFB
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Common Stock were subject to currently exercisable stock options which are
required to be exercised prior to the Closing Date of the Merger in accordance
with the Agreement and Plan of Merger.
CBI. CBI is authorized to issue 105,000,000 shares of CBI Common Stock,
$.01 par value. As of February 15, 1996, (i) 4,047,643 shares of CBI Common
Stock were issued and outstanding and (ii) 67,525 shares of CBI Common Stock
were subject to outstanding stock options.
DIRECTORS
CFB. The Bylaws of CFB provide for a board of directors having between one
and 12 members. The directors or shareholders may determine or redetermine the
number of directors to be elected by amendment to the bylaws, provided that
there shall never be less than one director.
Pursuant to CFB's Bylaws, any director may be removed from office with or
without cause at a meeting of the shareholders called expressly for that
purpose. Vacancies may be filled by the majority vote of directors still in
office though less than a quorum of the Board of Directors, with the
replacement to serve until the next election of directors by the shareholders.
CBI. The Bylaws of CBI provide for a Board of Directors of 13 persons,
which may be increased or decreased from time to time by the directors or
shareholders by amendment to the bylaws, but no decrease shall have the effect
of shortening the terms of any incumbent director. Vacancies may be filled by
the affirmative vote of a majority of the remaining directors although less
than a quorum of the Board of Directors.
Pursuant to CBI's Bylaws, any director may be removed from office with or
without cause by the affirmative vote of the holders of a majority of the votes
entitled to be cast by the holders of voting stock of CBI. Removal action may
be taken at any shareholders' meeting with respect to which notice of such
purpose has been given.
RIGHT OF FIRST REFUSAL
CFB. Under CFB's Bylaws, no stock may be transferred without first offering
the Board of Directors the opportunity to purchase the stock within 30 days
from receipt of a notice of the intent to sell at the proposed price and upon
the proposed terms as set forth in the written notice to the Board of
Directors.
CBI. CBI's Bylaws do not contain analogous right of first refusal
provisions.
INSPECTION RIGHTS
CFB. Under CFB's Bylaws, a holder of record of at least one quarter of 1%
of the shares, or of voting trust certificates therefor, at least six months
immediately preceding his demand of inspection shall have the right to examine
in person, or by agent or attorney at any reasonable time or times, for any
proper purpose its relevant books and records of accounts, minutes, and records
of shareholders and to make extracts therefrom, provided, that such holder
provides a written demand stating the purpose therefor.
CBI. Under CBI's Bylaws, any holder of record of shares, or of voting trust
certificates therefor, at least six months immediately preceding his demand of
inspection shall have the right to examine in person, or by agent or attorney
at any reasonable time or times, for any proper purpose its relevant books and
records of accounts, minutes, and records of shareholders and to make extracts
therefrom, provided, that such holder provides a written demand stating the
purpose therefor.
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SUPERVISION AND REGULATION
The following discussion sets forth certain of the material elements of the
regulatory framework applicable to banks and bank holding companies and
provides certain specific information related to CBI and CFB. This is a summary
of certain statutory and regulatory provisions referred to below and is not
intended to be and should not be viewed as complete description of the statutes
and regulations applicable to CBI's and CFB's business. Supervision, regulation
and examination of CBI and CFB and their respective subsidiary banks by the
bank regulatory agencies are intended primarily for the protection of
depositors rather than shareholders of CBI and CFB.
GENERAL
CBI and CFB are both bank holding companies registered with the Federal
Reserve under the BHC Act. As such, CBI and CFB and their non-bank subsidiaries
are subject to the supervision, examination, and reporting requirements of the
BHC Act and the regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or
control more than 5.0% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (iii) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business
of banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks
by bank holding companies, such that CBI, CFB and any other bank holding
company located in Florida may now acquire a bank located in any other state,
and any bank holding company located outside Florida may lawfully acquire any
bank based in another state, regardless of state law to the contrary, in either
case subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, after
June 1, 1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states. By adopting legislation prior to that
date, a state has the ability either to "opt in" and accelerate the date after
which interstate branching is permissible or "opt out" and prohibit interstate
branching altogether. As of March 1, 1995, Florida had not adopted legislation
opting in or out of interstate branching , but option legislation is expected
to be introduced for consideration by the Florida legislature in Spring 1996.
The BHC Act generally prohibits CBI and CFB from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or
unsound banking practices. For example, factoring accounts receivable,
acquiring or servicing loans, leasing personal property, conducting discount
securities brokerage activities,
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performing certain data processing services, acting as agent or broker in
selling credit life insurance and certain other types of insurance in
connection with credit transactions, and performing certain insurance
underwriting activities all have been determined by the Federal Reserve to be
permissible activities of bank holding companies. The BHC Act does not place
territorial limitations on permissible non-banking activities of bank holding
companies. Despite prior approval, the Federal Reserve has the power to order a
holding company or its subsidiaries to terminate any activity or to terminate
its ownership or control of any subsidiary when it has reasonable cause to
believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
Each of the banking subsidiaries of CBI and CFB is a member of the FDIC,
and as such, its deposits are insured by the FDIC to the maximum extent
provided by law. Each such subsidiary is also subject to numerous state and
federal statutes and regulations that affect its business, activities, and
operations, and each is supervised and examined by one or more state or federal
bank regulatory agencies.
The state-chartered banking subsidiary of CFB, CFBO, is a member of the
Federal Reserve System and subject to regulation, supervision, and examination
by the Federal Reserve and the Florida Department of Banking. The banking
subsidiary of CBI, CNBL, is a national banking association subject to
regulation, supervision, and examination by the OCC and the FDIC. The principal
federal banking regulator for each of the banking subsidiaries of CBI and CFB,
as well as the appropriate state banking authorities in the case of those
depository institution subsidiaries that are state-chartered, regularly examine
the operations of each of the depository institutions and are given authority
to approve or disapprove mergers, consolidations, the establishment of
branches, and similar corporate actions. The federal and state banking
regulators also have the power to prevent the continuance or development of
unsafe or unsound banking practices or other violations of law.
PAYMENT OF DIVIDENDS
CBI and CFB are legal entities separate and distinct from their banking and
other subsidiaries. The principal sources of cash flow of both CBI and CFB,
including cash flow to pay dividends to their respective stockholders, are
dividends from their banking subsidiaries. There are statutory and regulatory
limitations on the payment of dividends by these depository institution
subsidiaries to CBI and CFB, as well as by CBI and CFB to their stockholders.
CFBO is subject to the respective laws and regulations of the State of
Florida as to the payment of dividends. CNBL is required, as a national banking
association, by federal law to obtain the prior approval of the OCC for the
payment of dividends if the total of all dividends declared by the bank in any
year would exceed the total of (i) such bank's net profits (as defined and
interpreted by regulation) for that year, plus (ii) the retained net profits
(as defined and interpreted by regulation) for the proceeding two years, less
any required transfers to surplus. In addition, national banks may only pay
dividends to the extent that their retained net profits (including the portion
transferred to surplus) exceed statutory bad debts (as defined by regulation).
Federal Reserve policy similarly limits dividend payments by a state member
bank such as CBI.
If, in the opinion of the federal banking regulator, a bank or thrift under
its jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the depository
institution, could include the payment of dividends), such authority may
require, after notice and hearing, that such institution cease and desist from
such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. Moreover, the federal
agencies have issued policy statements that provide that bank holding companies
and insured banks should generally only pay dividends out of current operating
earnings.
At September 30, 1995, under dividend restrictions imposed under federal
and state laws, the banking subsidiaries of CBI and CFB, without obtaining
governmental approvals, could declare aggregate dividends to CBI and CFB of
approximately $13,830,000 and $1,268,000 million, respectively.
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The payment of dividends by CBI and CFB and their banking subsidiaries may
also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.
CAPITAL ADEQUACY
CBI, CFB, and their respective banking subsidiaries are required to comply
with the capital adequacy standards established by the Federal Reserve in the
case of CBI and CFB and the appropriate federal banking regulator in the case
of each of their banking subsidiaries. There are two basic measures of capital
adequacy for bank holding companies that have been promulgated by the Federal
Reserve: a risk-based measure and a leverage measure. All applicable capital
standards must be satisfied for a bank holding company to be considered in
compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio ("Risk-Based Capital Ratio") of total
capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8.0%. At least
half of Total Capital must comprise common stock, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder
may consist of subordinated debt, other preferred stock, and a limited amount
of loan loss reserves ("Tier 2 Capital"). At September 30, 1995, CBI'S
consolidated Risk- Based Capital Ratio and its Tier 1 Risk-Based Capital Ratio
(i.e., the ratio of Tier 1 Capital to risk-weighted assets) were 9.37% and
18.70%, respectively, and CFB's consolidated Risk-Based Capital and Tier 1
Risk-Based Capital Ratios were 10.71% and 15.46%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3.0% for bank holding companies that
meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis
points. CBI's and CFB's respective Leverage Ratios at September 30, 1995, were
9.37% and 9.97%, respectively. The guidelines also provide that bank holding
companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
Each of CBI's and CFB's banking subsidiaries is subject to risk-based and
leverage capital requirements adopted by its federal banking regulator, which
are substantially similar to those adopted by the Federal Reserve for bank
holding companies. Each of the banking was in compliance with applicable
minimum capital requirements as of September 30, 1995. Neither CBI, CFB, nor
any of their banking subsidiaries has been advised by any federal banking
agency of any specific minimum capital ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As described
below, substantial additional restrictions can be imposed upon FDIC-insured
depository institutions that fail to meet applicable capital requirements. See
"--Prompt Corrective Action."
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The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve, the OCC, and the FDIC have,
pursuant to FDICIA, proposed an amendment to the risk-based capital standards
that would calculate the change in an institution's net economic value
attributable to increases and decreases in market interest rates and would
require banks with excessive interest rate risk exposure to hold additional
amounts of capital against such exposures.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve policy, CBI and CFB are expected to act as sources of
financial strength for, and to commit resources to support, each of their
respective banking subsidiaries. This support may be required at times when,
absent such Federal Reserve policy, CBI or CFB may not be inclined to provide
it. In addition, any capital loans by a bank holding company to any of its
banking subsidiaries are subordinate in right of payment to deposits and to
certain other indebtedness of such banks. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with
(i) the default of a commonly controlled FDIC-insured depository institution or
(ii) any assistance provided by the FDIC to any commonly controlled
FDIC-insured depository institution "in danger of default." "Default" is
defined generally as the appointment of a conservator or receiver, and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance. The FDIC's claim for damages is superior to claims of stockholders
of the insured depository institution or its holding company, but is
subordinate to claims of depositors, secured creditors, and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institution. The banking subsidiaries of CBI and CFB are subject to
these cross-guarantee provisions. As a result, any loss suffered by the FDIC in
respect of any of these subsidiaries would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against the
banks' depository institution affiliates, and a potential loss of CBI'S or
CFB's respective investments in such other banking subsidiaries.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to
a narrow exception, FDICIA requires the banking regulator to appoint a receiver
or conservator for an institution that is critically undercapitalized. The
federal banking agencies have specified by regulation the relevant capital
level for each category.
Under the final agency rules implementing the prompt corrective action
provisions, an institution that (i) has a Risk-Based Capital Ratio of 10% or
greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, and a Leverage
Ratio of 5.0% or greater and (ii) is not subject to any written agreement,
order, capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency is deemed to be well capitalized. An
institution with a Risk-Based Capital Ratio of 8.0% or greater, a Tier 1
Risk-Based Capital Ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or
greater is considered to be adequately capitalized. A depository institution
that has a Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based
Capital Ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is
considered to be undercapitalized. A depository institution that has a
Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio
of less than 3.0%, or a Leverage Ratio of less than 3.0% is considered to be
significantly undercapitalized, and an institution that has a tangible equity
capital to assets ratio equal to or less than 2.0% is deemed to be critically
undercapitalized. For purposes of the
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regulation, the term "tangible equity" includes core capital elements counted
as Tier 1 Capital for purposes of the risk-based capital standards, plus the
amount of outstanding cumulative perpetual preferred stock (including related
surplus), minus all intangible assets with certain exceptions. A depository
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position if it receives an unsatisfactory
examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary
depository institution meet its capital restoration plan, subject to certain
limitations. The obligation of a controlling bank holding company under FDICIA
to fund a capital restoration plan is limited to the lesser of 5.0% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches, or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the approval of
the FDIC. In addition, the appropriate federal banking agency is given
authority with respect to any undercapitalized depository institution to take
any of the actions it is required to or may take with respect to a
significantly undercapitalized institution as described below if it determines
"that those actions are necessary to carry out the purpose" of FDICIA.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking agency must require the institution to take one or more of the
following actions: (i) sell enough shares, including voting shares, to become
adequately capitalized; (ii) merge with (or be sold to) another institution (or
holding company), but only if grounds exist for appointing a conservator or
receiver; (iii) restrict certain transactions with banking affiliates as if the
"sister bank" exception to the requirements of Section 23A of the Federal
Reserve Act did not exist; (iv) otherwise restrict transactions with bank or
non-bank affiliates; (v) restrict interest rates that the institution pays on
deposits to "prevailing rates" in the institution's "region;" (vi) restrict
asset growth or reduce total assets; (vii) alter, reduce, or terminate
activities; (viii) hold a new election of directors; (ix) dismiss any director
or senior executive officer who held office for more than 180 days immediately
before the institution became undercapitalized, provided that in requiring
dismissal of a director or senior officer, the agency must comply with certain
procedural requirements, including the opportunity for an appeal in which the
director or officer will have the burden of proving his or her value to the
institution; (x) employ "qualified" senior executive officers; (xi) cease
accepting deposits from correspondent depository institutions; (xii) divest
certain nondepository affiliates which pose a danger to the institution; or
(xiii) be divested by a parent holding company. In addition, without the prior
approval of the appropriate federal banking agency, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such an officer.
At September 30, 1995, all of the banking subsidiaries of CBI and CFB had
the requisite capital levels to qualify as well capitalized.
FDIC INSURANCE ASSESSMENTS
In July 1993, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The new
system, which went into effect on January 1, 1994, and replaced a transitional
system that the FDIC had utilized for the 1993 calendar year, assigns an
institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; and (iii) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the undercapitalized category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance
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<PAGE> 124
assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, as well as the prior transitional system, there are nine
assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
Assessment rates for members of both the Bank Insurance Fund ("BIF") for the
first half of 1995, as they had been during 1994, ranged from 23 basis points
(0.23% of deposits) for an institution in the highest category (i.e., "well
capitalized" and "healthy") to 31 basis points (0.31% of deposits) for an
institution in the lowest category (i.e., "undercapitalized" and "substantial
supervisory concern"). These rates were established for both funds to achieve a
designated ratio of reserves to insured deposits (i.e., 1.25%) within a
specified period of time.
Once the designated ratio for the BIF was reached, which appears to have
occurred some time during May 1995, the FDIC was authorized to reduce the
minimum assessment rate below 23 basis points and to set future assessment
rates at such levels that would maintain a fund's reserve ratio at the
designated level. In August 1995, the FDIC adopted final regulations reducing
the assessment rates for BIF-member banks. Under the revised schedule,
BIF-member banks, starting with the second half of 1995, will pay assessments
ranging from four basis points to 31 basis points, with an average assessment
rate of 4.5 basis points. Refunds, with interest, will be paid for assessments
for the month(s) after the month in which the designated reserve ratio for the
BIF was reached, as well as for the quarterly payment made on September 30,
1995, assuming that the designated reserve ratio was achieved prior to June 30,
1995. More recently, on November 14, 1995, the FDIC announced that, beginning
in 1996, it would further reduce the deposit insurance premiums for BIF members
in the highest capital and supervisory categories to $2,000 per year,
regardless of deposit size.
<TABLE>
<CAPTION>
CBI CFB
---------------- ----------------
<S> <C> <C>
BIF Premium Paid $ 701,497 $ 51,472
BIF Refund Received (249,792) (20,135)
---------------- ---------------
Net Paid in 1995 $ 451,705 $ 31,337
================ ===============
</TABLE>
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
SAFETY AND SOUNDNESS STANDARDS
The FDIA, as amended by FDICIA and the Riegle Community Development and
Regulatory Improvement Act of 1994, requires the federal bank regulatory
agencies to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
asset quality, earnings, stock valuation and compensation, fees and benefits and
such other operational and managerial standards as the agencies deem
appropriate. The federal bank regulatory agencies have adopted, effective August
9, 1995, a set of guidelines prescribing safety and soundness standards pursuant
to FDICIA, as amended. The guidelines establish general standards relating to
internal controls and information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation, fees, and benefits. In general, the guidelines require, among
other things, appropriate systems and practices to identify and manage the risks
and exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director, or principal
stockholders. The federal banking agencies determined that stock valuation
standards were not appropriate. In addition, the agencies adopted regulations
that authorize, but do not require, an agency to order an institution that has
been given notice by an agency that it is not satisfying any of such safety and
soundness standards to submit a compliance plan. If, after being so notified, an
institution fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan or fails in any
material respect to implement an accepted compliance plan, the agency must issue
an order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized association is
subject under the "prompt correction action" provisions of FDICIA. See
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<PAGE> 125
"--Prompt Corrective Act." If an institution fails to comply with such an
order, the agency may seek to enforce such order in judicial proceedings and to
impose civil money penalties. The federal bank regulatory agencies also
proposed guidelines for asset quality and earnings standards.
COMMUNITY REINVESTMENT ACT
CBI, CFB and their banking subsidiaries are subject to the provisions of
the Community Reinvestment Act of 1977, as amended (the "CRA") and the federal
banking agencies' regulations thereunder. Under the CRA, all banks and thrifts
have a continuing and affirmative obligation, consistent with its safe and
sound operation to help meet the credit needs for their entire communities,
including low- and moderate-income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions, nor does
it limit an institution's discretion to develop the types of products and
services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires a depository institution's primary
federal regulator, in connection with its examination of the institution, to
assess the institution's record in assessing and meeting the credit needs of
the community served by that institution, including low- and moderate-income
neighborhoods. The regulatory agency's assessment of the institution's record
is made available to the public. Further, such assessment is required of any
institution which has applied to: (i) charter a national bank; (ii) obtain
deposit insurance coverage for a newly-chartered institution; (iii) establish a
new branch office that accepts deposits; (iv) relocate an office; or (v) merge
or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. In the case of a bank holding
company applying for approval to acquire a bank or other bank holding company,
the Federal Reserve will assess the records of each subsidiary depository
institution of the applicant bank holding company, and such records may be the
basis for denying the application. Following their most recent CRA
examinations, CNBL and CFBO each received a "satisfactory" CRA ratings.
Under new CRA regulations, effective January 1, 1996, the process-based CRA
assessment factors have been replaced with a new evaluation system that rates
institutions based on their actual performance in meeting community credit
needs. The evaluation system used to judge an institution's CRA performance
consists of three tests: a lending test; an investment test; and a service
test. Each of these tests will be applied by the institution's primary federal
regulator taking into account such factors as: (i) demographic data about the
community; (ii) the institution's capacity and constraints; (iii) the
institution's product offerings and business strategy; and (iv) data on the
prior performance of the institution and similarly-situated lenders. The new
lending test, the most important of the three tests for all institutions other
than wholesale and limited purpose (e.g., credit card) banks, will evaluate an
institution's lending activities as measured by its home mortgage loans, small
business and farm loans, community development loans, and, at the option of the
institution, its consumer loans.
Each of these lending categories will be weighed to reflect its relative
importance to the institution's overall business and, in the case of community
development loans, the characteristics and needs of the institution's service
area and the opportunities available for this type of lending. Assessment
criteria for the lending test will include: (i) geographic distribution of the
institution's lending; (ii) distribution of the institution's home mortgage and
consumer loans among different economic segments of the community; (iii) the
number and amount of small business and small farm loans made by the
institution; (iv) the number and amount of community development loans
outstanding; and (v) the institution's use of innovative or flexible lending
practices to meet the needs of low-to-moderate income individuals and
neighborhoods. At the election of an institution, or if particular
circumstances so warrant, the banking agencies will take into account in making
their assessments lending by the institution's affiliates as well as community
development loans made by the lending consortia and other lenders in which the
institution has invested. As part of the new regulation, all financial
institutions will be required to report data on their small business and small
farm loans as well as their home mortgage loans, which are currently required
to be reported under the Home Mortgage Disclosure Act.
The investment test focuses on the institution's qualified investments
within its service area that (i) benefit low- to-moderate income individuals
and small businesses or farms, (ii) address affordable housing needs, or (iii)
involve donations of branch offices to minority or women's depository
institutions. Assessment of an institution's performance under the investment
test is based upon the dollar amount of the institution's qualified
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<PAGE> 126
investments, its use of innovative or complex techniques to support community
development initiatives, and its responsiveness to credit and community
development needs.
The service test evaluates an institution's systems for delivering retail
banking services, taking into account such factors as (i) the geographic
distribution of the institution's branch offices and ATMs, (ii) the
institution's record of opening and closing branch offices and ATMs, and (iii)
the availability of alternative product delivery systems such as home banking
and loan production offices in low-to-moderate income areas. The federal
regulators also will consider an institution's community development service as
part of the service test. A separate community development test will be
applied to wholesale or limited purpose financial institutions.
Institutions having total assets of less than $250 million will be
evaluated under more streamlined criteria. CFB is subject to these streamlined
criteria, but CBI is not. In addition, a financial institution will have the
option of having its CRA performance evaluated based on a strategic plan of up
to five years in length that it had developed in cooperation with local
community groups. In order to be rated under a strategic plan, the institution
will be required to obtain the prior approval of its federal regulator.
The interagency CRA regulations provide that an institution evaluated under
a given test will receive one of five ratings for that test: outstanding, high
satisfactory, low satisfactory, needs to improve, or substantial non-
compliance. An institution will receive a certain number of points for its
rating on each test, and the points are combined to produce an overall
composite rating of either outstanding, satisfactory, needs to improve, or
substantial noncompliance. Under the agencies' rating guidelines, an
institution that receives an "outstanding" rating on the lending test will
receive an overall rating of at least "satisfactory", and no institution can
receive an overall rating of "satisfactory" unless it receives a rating of at
least "low satisfactory" on its lending test. In addition, evidence of
discriminatory or other illegal credit practices would adversely affect an
institution's overall rating. Under the new regulations, an institution's CRA
rating would continue to be taken into account by its primary federal regulator
in considering various types of applications.
DEPOSITOR PREFERENCE
The Omnibus Budget Reconciliation Act of 1993 provides that deposits and
certain claims for administrative expenses and employee compensation against an
insured depository institution would be afforded a priority over other general
unsecured claims against such an institution in the "liquidation or other
resolution" of such an institution by any receiver.
FISCAL AND MONETARY POLICY
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings. Thus,
the earnings and growth of CFB and CBI are subject to the influence of economic
conditions generally, both domestic and foreign, and also to the monetary and
fiscal policies of the United States and its agencies, particularly the Federal
Reserve. The Federal Reserve regulates the supply of money through various
means, including open market dealings in United States government securities,
the discount rate at which banks may borrow from the Federal Reserve, and the
reserve requirements on deposits. The nature and timing of any changes in such
policies and their effect on CFB and CBI cannot be predicted.
ENFORCEMENT POLICIES AND ACTIONS
FIRREA and subsequent federal legislation significantly increased the
enforcement authorities of the FDIC and other federal depository institution
regulators, and authorizes the imposition of civil money penalties of up to $1
million per day. Persons who are affiliated with depository institutions can be
removed from any office held in such institution and banned for life from
participating in the affairs of any such institution. The banking regulators
have not hesitated to use the new enforcement authorities provided under
FIRREA. While the Federal Reserve and the
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<PAGE> 127
FDIC have taken no formal enforcement action against CFB or CBI, in 1994, CFB
entered into a Memorandum of Understanding ("MOU") with the Federal Reserve
Bank of Atlanta. The MOU required CFBO to revise certain Truth-in-Lending
disclosures that were incorrect due to the computer programs used by CFBO.
Generally, these errors led to disclosures that overstated the amounts charged
to consumers, and no reimbursements were required or requested. CFBO has
corrected its programming and disclosure practices. See "FINANCIAL
STATEMENTS."
LEGISLATIVE AND REGULATORY CHANGES
Various changes have been proposed with respect to restructuring and
changing the regulation of the financial services industry. FIRREA required a
study of the deposit insurance system. On February 5, 1991, the Department of
the Treasury released "Modernizing the Financial System; Recommendations for
Safer, More Competitive Banks." Among other matters, this study analyzed and
made recommendations regarding reduced bank competitiveness and financial
strength, over extension of deposit insurance, the fragmented regulatory system
and the under capitalized deposit insurance fund. It proposed restoring
competitiveness by allowing banking organizations to participate in a full
range of financial services outside of insured commercial banks. Deposit
insurance coverage would be narrowed to promote market discipline. Risk based
deposit insurance premiums were proposed with feasibility tested through an
FDIC demonstration project using private reinsurers to provide market pricing
for risk based premiums.
Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, thrifts and other financial institutions and bank
and bank holding company powers are being considered by the executive branch of
the Federal government, Congress and various state governments, including
Florida. Among other items under consideration are changes in or repeal of the
Glass-Steagall Act which separates commercial banking from investment banking,
combination of the FDIC's BIF and SAIF deposit insurance funds, and changes in
the BHC Act to broaden the powers of "financial services" companies to own and
control depository institutions and engage in activities not closely related to
banking. The United States House of Representatives has passed a bill freezing
the adoption of new regulations. Certain of these proposals, if adopted, could
significantly change the regulation of banks and the financial services
industry. It cannot be predicted whether any of these will be adopted, and, if
adopted, how these proposals will affect CBI, CFB and their subsidiary banks.
EXPERTS
The consolidated financial statements of CBI at December 31, 1994, 1993 and
1992, and for the three years then ended appearing elsewhere herein, for the
year ended December 31, 1994, have been audited by Purvis, Gray and Company,
independent auditors, as set forth in their report thereon included herein.
Such consolidated financial statements are included herein in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of CFB at December 31, 1994, 1993 and
1992, and for the three years then ended, appearing elsewhere herein, have been
audited by Purvis, Gray and Company, independent auditors, as set forth in
their report thereon included herein. Such consolidated financial statements
are included herein in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of CBI Common Stock being offered hereby is
being passed upon for CBI by Alston & Bird, Atlanta, Georgia, special counsel
for CBI. Alston & Bird will also opine as to certain federal income tax
consequences of the Merger. See "THE MERGER_Certain Federal Income Tax
Consequences."
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<PAGE> 128
OTHER MATTERS
From time to time, CBI has engaged in transactions with CFB in the ordinary
course of business, including, without limitation, loan participations.
As of the date of this Proxy Statement/Prospectus, CFB's Board of Directors
knows of no matters that will be presented for consideration at the Special
Meeting other than as described in this Proxy Statement/Prospectus. However, if
any other matter shall come before the Special Meeting or any adjournments or
postponements thereof and shall be voted upon, the proposed proxy will be
deemed to confer authority to the individuals named as authorized therein to
vote the shares represented by such proxy as to any such matters that fall
within the purposes set forth in the Notice of Special Meeting as determined by
a majority of the Board of Directors.
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<PAGE> 129
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF CITIZENS FIRST BANCSHARES, INC. AND ITS SUBSIDIARY,
- ----------------------------------------------------------------------------------------
SEPTEMBER 30, 1995 (UNAUDITED) AND SEPTEMBER 30, 1994 (UNAUDITED)
-----------------------------------------------------------------
Consolidated Balance Sheets as of September 30, 1995 (Unaudited) and September 1994
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Statements of Income for the nine month periods ended September 30, 1995
and September 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Cash Flows for the nine months ended September 30, 1995
and September 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Notes to Unaudited Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-4
CONSOLIDATED FINANCIAL STATEMENTS OF CITIZENS FIRST BANCSHARES, INC. AND ITS SUBSIDIARY,
- ----------------------------------------------------------------------------------------
DECEMBER 31, 1994 AND 1993, WITH THE REPORT OF INDEPENDENT AUDITORS THEREON
---------------------------------------------------------------------------
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Consolidated Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . F-10
Consolidated Statements of Income for the years ended December 31, 1994 and 1993 . . . . . . . . F-11
Consolidated Statement of Changes in Stockholders' Investment . . . . . . . . . . . . . . . . . . F-13
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1993 . . . . . . F-14
Notes to Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-15
CONSOLIDATED FINANCIAL STATEMENTS OF CITI-BANCSHARES, INC. AND ITS SUBSIDIARY,
- ------------------------------------------------------------------------------
SEPTEMBER 30, 1995 (UNAUDITED) AND SEPTEMBER 30, 1994 (UNAUDITED)
-----------------------------------------------------------------
Consolidated Balance Sheets as of September 30, 1995 (Unaudited) and September 1994
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Consolidated Statements of Income for the nine month periods ended September 30, 1995
and September 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-31
Consolidated Statements of Cash Flows for the nine months ended September 30, 1995
and September 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32
Notes to Unaudited Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-33
CONSOLIDATED FINANCIAL STATEMENTS OF CITI-BANCSHARES, INC. AND ITS SUBSIDIARY,
- ------------------------------------------------------------------------------
DECEMBER 31, 1994, 1993 AND 1992, WITH THE REPORT OF INDEPENDENT AUDITORS THEREON
---------------------------------------------------------------------------------
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-39
Consolidated Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . F-40
Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992 . . . . . F-41
Consolidated Statement of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . F-42
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 . . . F-43
Notes to Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-44
</TABLE>
<PAGE> 130
CONSOLIDATED BALANCE SHEETS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
OCALA, FLORIDA
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
As of September 30,
----------------------------------
1995 1994
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash and Cash Equivalents $ 2,567 $ 2,197
Interest-Bearing Deposits in Banks 1 1
Investment Securities:
U.S. Treasury 1,499 1,972
U.S. Government Agencies 6,980 1,927
Other 667 664
------------- --------------
Total Investment Securities 9,146 4,563
------------- --------------
Federal Funds Sold 1,656 0
Loans, Less Allowance for Possible Loan Losses of $403
and $406 in 1995 and 1994, respectively 24,384 21,304
Bank Premises and Equipment, Net 1,431 1,039
Deferred Tax Asset, Net 0 281
Accrued Interest and Other Assets 344 235
------------- --------------
Total Assets $ 39,538 $ 29,620
============= ==============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Liabilities
Deposits:
Demand $ 6,053 $ 7,915
NOW and Money Market Accounts 7,718 8,305
Savings 4,726 2,842
Time 16,541 6,709
------------- --------------
Total Deposits 35,038 25,771
Federal Funds Purchased 0 923
Accrued Interest and Other Liabilities 266 94
------------- --------------
Total Liabilities 35,304 26,788
------------- --------------
Stockholders' Investment
Common Stock - Consolidated, $.10 Par Value, 750
Shares Authorized, 304 Shares Issued and
Outstanding in 1995 and 223 in 1993 $ 30 $ 22
Capital Surplus 3,818 3,016
Retained Earnings (Deficit) 398 (140)
Unrealized Losses on Certain Securities (12) (66)
------------- --------------
Total Stockholders' Investment 4,234 2,832
------------- --------------
Total Liabilities and Stockholders' Investment $ 39,538 $ 29,620
============= ==============
</TABLE>
F-1
<PAGE> 131
CONSOLIDATED STATEMENTS OF INCOME
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
OCALA, FLORIDA
<TABLE>
<CAPTION>
Nine Months Ended,
September 30,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Interest Income
Interest and Fees on Loans $ 1,847 $ 1,288
Interest on Investment Securities:
U.S. Treasury 52 72
U.S. Government Agencies 210 48
Other 32 27
Interest on Federal Funds Sold 142 20
------------- --------------
Total Interest Income 2,283 1,455
------------- --------------
Interest Expense
Deposits 852 312
Federal Funds Purchased 6 5
------------- --------------
Total Interest Expense (858) (317)
------------- ---------------
Net Interest Income 1,425 1,138
Provision for Possible Loan Losses 0 0
------------- --------------
Net Interest Income After Provision for Possible Loan Losses 1,425 1,138
Other Operating Income
Service Charges on Deposit Accounts 336 276
Other 102 78
------------- --------------
Total Other Operating Income 438 354
------------- --------------
Other Expenses
Salaries and Employee Benefits 581 612
Occupancy Expense 136 140
Equipment Expense 65 67
Other Operating Expenses 461 411
------------- --------------
Total Other Expenses (1,243) (1,260)
------------- ---------------
Income Before Income Taxes 620 232
Income Tax Expense (209) (74)
------------- ---------------
Net Income $ 411 $ 158
============= ==============
</TABLE>
F-2
<PAGE> 132
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY - OCALA, FLORIDA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 411 $ 158
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses 0 0
Depreciation 55 56
Amortization of Premium on Investments 3 16
Decrease (Increase) in Deferred Tax Asset, Net 298 74
Decrease (Increase) in Accrued Interest and Other
Assets (117) (77)
Increase in Accrued Interest and other
Liabilities 138 31
------------- --------------
Net Cash Provided by Operating Activities 788 258
------------- --------------
Cash Flows From Investing Activities
Proceeds from Sales and Maturities of Investment
Securities 3,392 559
Purchases of Investment Securities (7,498) (86)
Proceeds from Sale of Equipment 0 2
Purchases of Equipment and CWIP (465) (9)
(Increase) in Loans (2,194) (5,470)
(Increase) Decrease in Federal Funds, Net (1,656) 743
------------- --------------
Net Cash (Used In) Provided by Investing Activities (8,421) (4,261)
------------- --------------
Cash Flows from Financing Activities
Increase (Decrease) in Deposits, Net 7,806 3,858
Federal Funds Purchased (1,240) 0
Proceeds from Stock Warrants 811 0
------------- --------------
Net Cash Provided by (Used in) Financing Activities 7,377 3,858
------------- --------------
Increase (Decrease) in Cash and Cash Equivalents (256) (145)
Cash and Cash Equivalents, Beginning of Period 2,832 2,341
------------- --------------
Cash and Cash Equivalents, End of Period $ 2,576 $ 2,196
============= ==============
Supplemental Disclosures of Cash Flow Information
Cash Paid for Interest $ 735 $ 325
============= ==============
Disposal of Premises and Equipment:
Cost 2 0
(Accumulated Deficit) 0 0
------------- --------------
Total 2 0
============= ==============
Total Income Taxes Paid $ 0 $ 0
============= ==============
</TABLE>
F-3
<PAGE> 133
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Citizens First
Bancshares, Inc. (the Company) and its subsidiary conform to
generally accepted accounting principles and to predominant
practices within the banking industry.
In the opinion of the Company's management, all adjustments
necessary to present fairly the financial position as of
September 30, 1995 and 1994, and the results of operations and
cash flows for the period then ended have been included and are
of normal and recurring nature.
Certain amounts for 1994 were reclassified to conform with
statement presentation for September 30, 1995. These
reclassifications have no effect on stockholders' equity or net
income as previously reported.
NOTE 2 - INCOME TAXES
Federal and state income taxes are provided on income reported
for financial statement purposes and include both current and
deferred income tax expense. Current income tax expense is
recorded to reflect income taxes based upon the tax returns filed
with the appropriate taxing agencies. Deferred income taxes are
recorded to reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and
their financial reporting amounts at year end. The change in
deferred taxes attributable to the carrying value of investments
categorized as "available-for-sale" is recognized as a change in
stockholders' equity. The change in deferred income taxes
attributable to all other timing differences is recognized as
deferred income tax expense or benefit. The tax benefit related
to operating loss and tax credit carryforwards, if any, are
recognized if management believes, based on available evidence,
that it is more likely than not that they will be realized.
Investment tax credits, if any, are accounted for using the
flow-through method.
The Company files consolidated federal and state income tax
returns with its subsidiary, Citizens National Bank of Leesburg.
Federal and state income taxes are allocated between the Company
and its subsidiary in proportion to the respective contributions
in consolidated taxable income.
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Major categories of loans included in the loan portfolio are:
<TABLE>
<CAPTION>
In Thousands
-----------------
9/30/95 9/30/94
------- -------
<S> <C> <C>
Commercial, Financial and Agricultural $ 1,474 $ 2,197
Real Estate 16,810 13,916
Installment Loans 6,528 5,627
------- -------
Loans Receivable - Gross 24,812 21,740
(Unearned Discount) (25) (30)
------- -------
24,787 21,710
(Allowance For Possible Loan Losses) (403) (406)
------- -------
</TABLE>
F-4
<PAGE> 134
<TABLE>
<S> <C> <C>
LOANS RECEIVABLE - NET $ 24,384 $ 21,304
======== ========
</TABLE>
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
--------------------
9/30/95 9/30/94
------- -------
<S> <C> <C>
BALANCE, BEGINNING OF PERIOD $ 410 $ 387
------- -------
Additions:
Provision Charged to Expense 0 0
Recoveries on Loans Previously Charged Off 23 35
------- --------
Total Additions 23 35
(Loans Charged Off) (30) (16)
------- --------
BALANCE, END OF PERIOD $ 403 $ 406
======= ========
</TABLE>
NOTE 4 - REALIZED AND UNREALIZED GAINS (LOSSES) ON SECURITIES
UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE
Effective January 1, 1994, the Company adopted the investment
categorization and carrying value rules as required by Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 115 (FASB No. 115), Accounting for Certain
Investments in Debt and Equity Securities. Under this statement,
the unrealized gain or loss on investment securities
available-for-sale, net of the applicable deferred income taxes,
is shown as a separate component of stockholders' equity in the
balance sheet. The following is a summary of the effects of the
statement of stockholders' equity as of September 30, 1995 and
September 30, 1994:
<TABLE>
<CAPTION>
In Thousands
--------------------
9/30/95 9/30/94
------- -------
<S> <C> <C>
Gross Unrealized Gains (Losses) on Investment
Securities Available-For-Sale $ (20) $ (115)
Deferred Income Tax (Liability) Asset on
Unrealized Gain 7 48
------ ------
NET (DECREASE) IN STOCKHOLDERS' EQUITY $ (13) $ (67)
====== =======
</TABLE>
REALIZED GAINS (LOSSES) ON CALLS OF SECURITIES HELD-TO-MATURITY
The Company had no security sales during 1995 or 1994. During
1995, calls of securities classified as available-for-sale
totaled $1,481,000, with resulting gross gains of $37,000 and
gross losses of $26,000.
NOTE 5 - PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
In Thousands
------------------------
9/30/95 9/30/94
------- -------
<S> <C> <C>
Land $ 459 $459
Buildings 699 699
</TABLE>
F-5
<PAGE> 135
<TABLE>
<S> <C> <C>
Furniture, Fixtures and Equipment 935 932
------ ------
2,093 2,090
(Accumulated Depreciation) (1,125) (1,051)
------ ------
968 1,039
Building Construction in Process 463 0
--- -
TOTAL PREMISES AND EQUIPMENT $ 1,431 $ 1,039
======= =======
</TABLE>
During January 1996, CFB closed its College Road branch office,
completed construction on a new main office, demolished the current
main office and sold the lot adjacent to the former main office for
a purchase price of $300,000. The cost of construction of the new
main office is approximately $1,300,000. The cumulative effect of
the sale of the adjacent lot at a profit and the demolition and
subsequent accounting write-down of the book value of the former
main office is expected to be a net positive gain to CFB.
NOTE 6 - DEPOSITS
<TABLE>
<CAPTION>
In Thousands
--------------------
9/30/95 9/30/94
------- -------
<S> <C> <C>
Demand $ 6,053 $ 7,915
Savings 12,444 11,147
Time 16,541 6,709
------- -------
TOTAL DEPOSITS $35,038 $25,771
======= =======
</TABLE>
NOTE 7 - COMMITMENTS
On September 15, 1995, the Company signed a nonbinding letter of
intent to be acquired by a local financial institution. The
agreement is subject to an indepth due diligence investigation and
regulatory approval.
F-6
<PAGE> 136
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
DECEMBER 31, 1994 AND 1993
F-7
<PAGE> 137
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
CITIZENS FIRST BANCSHARES, INC. AND
SUBSIDIARY AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
DECEMBER 31, 1994 AND 1993
CONTENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT F-9
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS F-10
CONSOLIDATED STATEMENTS OF INCOME F-11
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
INVESTMENT F-13
CONSOLIDATED STATEMENTS OF CASH FLOWS F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-15
F-8
<PAGE> 138
[PURVIS GRAY & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Citizens First Bancshares, Inc. and
Citizens First Bank of Ocala
Ocala, Florida
We have audited the accompanying consolidated balance sheets of Citizens First
Bancshares, Inc. and Subsidiary (the Company) and Citizens First Bank of Ocala
(the Bank) as of December 31, 1994 and 1993, and the related consolidated
statements of income, changes in stockholders' investment and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens First
Bancshares, Inc. and Subsidiary and Citizens First Bank of Ocala as of December
31, 1994 and 1993, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Company adopted Statement of Financial Accounting Standard No. 115, thereby
changing its method of accounting for certain investment securities.
February 14, 1995
Ocala, Florida /s/ Purvis Gray and Company
F-9
<PAGE> 139
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
<TABLE>
<CAPTION>
ASSETS
CONSOLIDATED BANK
---------------------------- ---------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 2,831,755 $ 2,340,570 $ 2,831,755 $ 2,340,570
Interest-Bearing Deposits in Banks 1,200 1,200 1,200 1,200
Investment Securities:
U.S. Treasury 1,965,210 2,519,244 1,965,210 2,519,244
U.S. Government Agencies 2,409,361 1,996,832 2,409,361 1,996,832
Other 648,842 651,225 648,842 651,225
------------ ------------ ------------ ------------
Total Investment Securities 5,023,413 5,167,301 5,023,413 5,167,301
------------ ------------ ------------ ------------
Loans, Less Allowance For Possible
Loan Losses of $410,280 and
$386,754 in 1994 and 1993, Respectively 22,190,346 15,833,572 22,190,346 15,833,572
Bank Premises and Equipment, Net 1,021,256 1,088,312 1,021,256 1,088,312
Deferred Tax Asset, Net 215,662 306,502 215,662 306,502
Accrued Interest and Other Assets 226,122 157,604 226,122 157,604
------------ ------------ ------------ ------------
TOTAL ASSETS 31,509,754 24,895,061 31,509,754 24,895,061
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
LIABILITIES
Deposits:
Demand 8,276,200 8,659,657 8,276,561 8,667,389
NOW and Money Market Accounts 7,657,943 5,545,271 7,657,943 5,545,271
Savings 2,758,459 2,710,154 2,758,459 2,710,154
Time ($100,000 and Over) 2,669,626 1,133,512 2,669,626 1,133,512
Other Time 5,870,213 3,862,948 5,870,213 3,862,948
------------ ------------ ------------ ------------
Total Deposits 27,232,441 21,911,542 27,232,802 21,919,274
Federal Funds Purchased 1,240,000 180,000 1,240,000 180,000
Accrued Interest and Other Liabilities 93,210 63,232 92,473 62,494
------------ ------------ ------------ ------------
TOTAL LIABILITIES 28,565,651 22,154,774 28,565,275 22,161,768
------------ ------------ ------------ ------------
STOCKHOLDERS' INVESTMENT
Common Stock - Consolidated, $.10 Par
Value, 750,000 Shares Authorized,
223,425 Shares Issued and
Outstanding in 1994 and 1993;
Bank - $5 Par Value, 150,000 Shares
Authorized, 150,000 Shares Issued and
Outstanding in 1994 and 1993 22,343 22,343 750,000 750,000
Capital Surplus 3,015,526 3,015,526 1,860,000 1,860,000
Retained Earnings (Deficit) (13,529) (297,582) 414,716 123,293
Unrealized Losses on Certain Securities (80,237) 0 (80,237) 0
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' INVESTMENT 2,944,103 2,740,287 2,944,479 2,733,293
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 31,509,754 $ 24,895,061 $ 31,509,754 $ 24,895,061
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-10
<PAGE> 140
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
<TABLE>
<CAPTION>
CONSOLIDATED BANK
---------------------------- ----------------------------
1994 1993 1994 1993
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 1,835,733 $ 1,409,498 $ 1,835,733 $ 1,409,498
Interest on Investment Securities:
U.S. Treasury 91,388 190,575 91,388 190,575
U.S. Government Agencies 67,519 73,560 67,519 73,560
Other 36,727 46,358 36,727 46,358
Interest on Federal Funds Sold 34,251 36,242 34,251 36,242
------------ ------------- ------------- ------------
TOTAL INTEREST INCOME 2,065,618 1,756,233 2,065,618 1,756,233
------------ ------------- ------------- ------------
INTEREST EXPENSE
Deposits 456,864 384,330 456,864 384,330
Federal Funds Purchased 6,631 982 6,631 982
------------ ------------- ------------- ------------
TOTAL INTEREST EXPENSE 463,495 385,312 463,495 385,312
------------ ------------- ------------- ------------
NET INTEREST INCOME 1,602,123 1,370,921 1,602,123 1,370,921
PROVISION FOR POSSIBLE LOAN LOSSES 0 21,000 0 21,000
------------ ------------- ------------- ------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 1,602,123 1,349,921 1,602,123 1,349,921
------------ ------------- ------------- ------------
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 386,192 430,302 386,192 430,302
Other 104,524 109,809 104,524 109,809
------------ ------------- ------------- ------------
TOTAL OTHER OPERATING INCOME 490,716 540,111 490,716 540,111
------------ ------------- ------------- ------------
OTHER EXPENSES
Salaries and Employee Benefits 805,231 814,469 805,231 814,469
Occupancy Expense 183,464 184,259 183,464 184,259
Equipment Expense 92,348 126,528 92,348 126,528
Other Operating Expenses 588,493 498,041 581,123 491,380
------------ ------------- ------------- ------------
TOTAL OTHER EXPENSES (1,669,536) (1,623,297) (1,662,166) (1,616,636)
------------ ------------- ------------- ------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 423,303 266,735 430,673 273,396
INCOME TAX EXPENSE (139,250) (64,324) (139,250) (64,324)
------------ ------------- ------------- ------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 284,053 202,411 291,423 209,072
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGING
METHOD OF ACCOUNTING FOR INCOME TAXES 0 370,826 0 370,826
------------ ------------- ------------- ------------
NET INCOME $ 284,053 $ 573,237 $ 291,423 $ 579,898
============ ============= ============= ============
</TABLE>
See accompanying notes.
F-11
<PAGE> 141
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONCLUDED)
<TABLE>
<CAPTION>
CONSOLIDATED BANK
----------------------------- ------------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE
Income Before Cumulative Effect of
Change in Accounting Principle $ 1.27 $ 0.91 $ 1.94 $ 1.39
Cumulative Effect on Prior Years of
Changing Method of Accounting For
Income Taxes .00 1.66 .00 2.47
---------- ---------- ---------- ----------
NET INCOME PER COMMON SHARE $ 1.27 $ 2.57 $ 1.94 $ 3.86
========== ========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE
Income Before Cumulative Effect of
Change in Accounting Principle $ 1.12 $ .81
Cumulative Effect on Prior Years of
Changing Method of Accounting For
Income Taxes .00 1.45
---------- ----------
FULLY DILUTED INCOME PER COMMON SHARE $ 1.12 $ 2.26
========== ==========
Book Value Before Adjustment For
Unrealized Losses on Certain
Securities $ 13.54 $ 12.26
Adjustment For Unrealized Losses
on Certain Securities (.36) .00
---------- ----------
BOOK VALUE AT DECEMBER 31, 1994 $ 13.18 $ 12.26
========== ==========
</TABLE>
See accompanying notes.
F-12
<PAGE> 142
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' INVESTMENT FOR THE YEARS
ENDED DECEMBER 31, 1994 AND 1993 CITIZENS
FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
<TABLE>
<CAPTION>
CONSOLIDATED
--------------------------------------------------------------------------------
UNREALIZED
COMMON STOCK RETAINED LOSSES ON
-------------------- CAPITAL EARNINGS CERTAIN
SHARES AMOUNT SURPLUS (DEFICIT) SECURITIES TOTAL
------- --------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 223,425 $ 22,343 $ 3,015,526 $ (870,819) $ 0 $ 2,167,050
Net Income 0 0 0 573,237 0 573,237
------- --------- ----------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1993 223,425 22,343 3,015,526 (297,582) 0 2,740,287
Net Income 0 0 0 284,053 0 284,053
Unrealized Losses on
Certain Securities 0 0 0 0 (80,237) (80,237)
------- --------- ----------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1994 223,425 $ 22,343 $ 3,015,526 $ (13,529) $ (80,237) $ 2,944,103
======= ========= =========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
BANK
-----------------------------------------------------------------------------------------
UNREALIZED
COMMON STOCK RETAINED LOSSES ON
--------------------- CAPITAL EARNINGS CERTAIN
SHARES AMOUNT SURPLUS (DEFICIT) SECURITIES TOTAL
------- --------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 150,000 $ 750,000 $ 1,860,000 $ (456,605) $ 0 $ 2,153,395
Net Income 0 0 0 579,898 0 579,898
------- --------- ----------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1993 150,000 750,000 1,860,000 123,293 0 2,733,293
Net Income 0 0 0 291,423 0 291,423
Unrealized Losses on
Certain Securities 0 0 0 0 (80,237) (80,237)
------- --------- ----------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1994 150,000 $ 750,000 $ 1,860,000 $ 414,716 $ (80,237) $ 2,944,479
======= ========= =========== ========== ========== ===========
</TABLE>
See accompanying notes.
F-13
<PAGE> 143
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
<TABLE>
<CAPTION>
CONSOLIDATED BANK
---------------------------- -----------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 284,053 $ 573,237 $ 291,423 $ 579,898
Adjustment to Reconcile Net Income to
Net Cash Provided By Operating
Activities:
Provision For Loan Losses 0 21,000 0 21,000
Depreciation 75,118 51,504 75,118 51,504
Amortization of Premium on Investments 12,333 26,194 12,333 26,194
Decrease (Increase) in Deferred Tax
Asset, Net 139,250 (306,502) 139,250 (306,502)
(Increase) Decrease in Accrued Interest
and Other Assets (68,518) 24,205 (68,518) 24,205
Increase in Accrued Interest and Other
Liabilities 29,978 15,204 29,978 15,204
------------ ------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 472,214 404,842 479,584 411,503
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sales and Maturities of
Investment Securities 577,086 3,132,589 577,086 3,132,589
Purchases of Investment Securities (574,178) (2,036,842) (574,178) (2,036,842)
Proceeds From Sales of Equipment 1,897 1,488 1,897 1,488
Purchases of Equipment (9,959) (206,297) (9,959) (206,297)
(Increase) in Loans (6,356,774) (2,133,731) (6,356,774) (2,133,731)
Proceeds From Sale of Real Estate Owned 0 200,000 0 200,000
Decrease in Federal Funds, Net 0 2,304,000 0 2,304,000
------------ ------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (6,361,928) 1,261,207 (6,361,928) 1,261,207
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Deposits, Net 5,320,899 (1,992,591) 5,313,529 (1,999,252)
Federal Funds Purchased 1,060,000 0 1,060,000 0
------------ ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 6,380,899 (1,992,591) 6,373,529 (1,999,252)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 491,185 (326,542) 491,185 (326,542)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,340,570 2,667,112 2,340,570 2,667,112
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,831,755 $ 2,340,570 $ 2,831,755 $ 2,340,570
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid For Interest $ 445,155 $ 401,475 $ 445,155 $ 401,475
============ ============ ============ ============
Disposal of Premises and Equipment:
Cost $ 2,035 $ 110,514 $ 2,035 $ 110,514
(Accumulated Depreciation) (138) (109,026) (138) (109,026)
------------ ------------ ------------ ------------
TOTAL $ 1,897 $ 1,488 $ 1,897 $ 1,488
============ ============ ============ ============
TOTAL INCOME TAXES PAID $ 0 $ 0 $ 0 $ 0
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-14
<PAGE> 144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Citizens First Bancshares, Inc. (the Company) was formed in 1982
for the purpose of becoming a bank holding company. Citizens First
Bank of Ocala (the Bank), the Company's wholly-owned subsidiary,
was formed in 1978, and began operations in Ocala, Florida in 1979.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Citizens First Bank of
Ocala. All significant intercompany accounts and transactions have
been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash and due from banks.
INVESTMENT SECURITIES
Effective January 1, 1994, the Company adopted the investment
categorization and carrying value rules as required by Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 115 (FASB No. 115), Accounting for Certain
Investments in Debt and Equity Securities. Under FASB No. 115, the
Company is required to classify acquired debt and equity securities
into one of three categories: held-to-maturity, available-for-sale
and trading.
- Investments in debt securities are classified as
held-to-maturity only if the Company has the positive intent
and ability to hold such securities to maturity. These
investments are carried in the Consolidated Balance Sheets at
amortized cost, i.e., cost adjusted for amortization of
premiums and accretion of discounts as computed by the
interest method.
- All investments not classified as either held-to-maturity
securities or trading securities are classified as
available-for-sale. These securities are carried at market
value as of the date of the Consolidated Balance Sheets. The
unrealized gains and losses on these securities are excluded
from earnings for the year. Instead, the net unrealized gain
or loss, net of the applicable deferred income taxes, is shown
as a separate component of stockholders' equity in the
Consolidated Balance Sheets.
- Securities that are acquired and held principally for the
purpose of selling them in the near term are classified as
trading securities. Such securities, if any, are carried at
market value and the unrealized gains and losses on such
securities is included in income for the current year.
F-15
<PAGE> 145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT SECURITIES (CONCLUDED)
Prior to the adoption of FASB No. 115, investment debt securities
were stated at cost adjusted for amortization of premiums and
accretion of discounts as computed by the interest method.
Investments in marketable equity securities were carried at the
lower of cost or market value. Unrealized losses on such equity
securities considered to be temporary were charged against
stockholders' equity; declines in market value considered to be
other than temporary were charged to earnings.
Gains and losses on the sale of investment securities are computed
on the basis of specific identification of the adjusted cost of
each security.
NET INCOME PER COMMON SHARE
Net income per common share is calculated using the weighted
average number of shares outstanding during the year.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at face value, net of unearned discount and the
allowance for loan losses. Interest income on installment loans is
recognized using the method which approximates the interest method.
Interest income on commercial and real estate loans is recognized
using the effective interest method on the principal balances
outstanding. Accrual of interest is discontinued for loans which
are ninety days past due, or earlier if circumstances warrant.
The adoption of Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 114 (FASB No. 114), Accounting
by Creditors for Impairment of a Loan, is required in 1995.
Company management does not anticipate that its adoption will have
a material effect on the Company's financial position or results of
operations.
The allowance for loan losses is established through a provision
for loan losses charged to expense. The allowance represents an
amount which, in management's judgment, will be adequate to absorb
probable losses on existing loans that may ultimately become
uncollectible. Management's judgment in determining the adequacy
of the allowance is based on evaluations of the collectibility of
loans. These evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, current
economic conditions that may affect the borrower's ability to pay,
overall portfolio quality, and review of specific problem loans.
Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is
unlikely.
F-16
<PAGE> 146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOAN ORIGINATION FEES
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the
related loan.
REAL ESTATE OWNED
Real estate acquired by foreclosure or deed in lieu of foreclosure
is carried at the lower of its estimated fair value or the balance
of the related loan at the date the real estate is acquired. Costs
relating to the development and improvement of the real estate are
capitalized, whereas those costs related to holding the real estate
are charged to expense.
Sales of real estate owned are recorded under the full accrual
method of accounting. Under this method, a sale is not recognized
until payments received aggregate a specific required percentage of
the contract sales price. Losses are charged to operations as
incurred or when it is determined that the investment in such real
estate is greater than the estimated net realizable value.
BANK PREMISES AND EQUIPMENT
Land is stated at cost. Bank premises and equipment are stated at
cost less accumulated depreciation. Depreciation is computed using
the straight-line method over the estimated useful lives of the
respective assets as follows:
<TABLE>
<S> <C>
Buildings and Improvements 5 to 35 Years
Furniture, Fixtures and Equipment 5 to 10 Years
Leasehold Improvements 3 Years
</TABLE>
Gains or losses realized on the disposition of properties are
reflected in other operating income. Depreciation expense for 1994
was $75,118 and $51,504 for 1993.
INCOME TAXES
Federal and state income taxes are provided on income reported for
financial statement purposes and include both current and deferred
income tax expense. Current income tax expense is recorded to
reflect income taxes based upon the tax returns filed with the
appropriate taxing agencies. Deferred income taxes are recorded to
reflect the tax consequences on future years of differences between
the tax bases of assets and liabilities and their financial
reporting amounts at year end. The change in deferred taxes
attributable to the
F-17
<PAGE> 147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
INCOME TAXES (CONCLUDED)
carrying value of investments categorized as "Available-For-Sale"
is recognized as a change in stockholders' equity. The change in
deferred income taxes attributable to all other timing differences
is recognized as deferred income tax expense or benefit. The tax
benefit related to operating loss and tax credit carryforwards, if
any, are recognized if management believes, based on available
evidence, that it is more likely than not that they will be
realized. Investment tax credits, if any, are accounted for under
the flow-through method.
Citizens First Bancshares, Inc. files consolidated federal and
state income tax returns with its subsidiary, Citizens First Bank
of Ocala. Federal and state income taxes are allocated between the
Company and its subsidiary in proportion to the respective
contributions to consolidated taxable income.
Effective January 1, 1993, the Company adopted the asset and
liability method of accounting for income taxes as required by
Financial Accounting Standards Board Statement of Financial
Accounting Standard No. 109 (FASB No. 109), Accounting for Income
Taxes. The Company accounted for this change as a cumulative
effect of an accounting change in the 1993 financial statements.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with
current financial reporting to facilitate comparison of the
financial data.
NOTE 2 - REGULATORY ISSUES
During 1993, the Bank was operating under a Written Agreement with
the Federal Reserve Board and the Office of Comptroller, Department
of Banking and Finance of the State of Florida (the Regulators),
which imposed certain restrictions and requirements. Some of the
more significant restrictions and requirements included: no
declaration or payment of dividends without prior approval of the
Regulators; maintain a loan loss reserve equivalent to 1.4% of the
loan portfolio; and maintain minimum level of total capital to
total assets (primary capital) of 7.5%.
The Federal Reserve Bank of Atlanta examined the Bank as of October
31, 1993 and determined that the Bank had met all of the
requirements of the Written Agreement. The Federal Reserve Bank's
examination revealed that the Bank was operating in a satisfactory
manner. The Reserve Bank and the Florida Department of Banking and
Finance in letters to the Bank dated January 24, 1994 and February
4, 1994, respectively, terminated the Written Agreement due to the
improved condition of the Bank.
F-18
<PAGE> 148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 2 - REGULATORY ISSUES (CONCLUDED)
On November 10, 1994, the Board of Directors signed a Memorandum of
Understanding with the Federal Reserve Bank of Atlanta/Consumer
Affairs whereby the Bank agrees to comply with the requirements and
remedy the repeat violations found in the lending area during the
Bank's previous two Consumer Affairs Examinations. Memorandum
requirements ensure the Bank maintains a strong compliance position
with the various regulators.
NOTE 3 - INVESTMENT SECURITIES
The carrying value of securities, including information regarding
amortized cost, gross unrealized gains, gross unrealized losses and
market value is tabulated below:
<TABLE>
<CAPTION>
CARRYING VALUE SUMMARY
----------------------------------------------------------
DECEMBER 31, 1994 1993
------------------------------------------- ------------
AVAILABLE- HELD-
FOR- TO-
SALE MATURITY TOTAL TOTAL
------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 1,965,210 $ 0 $ 1,965,210 $ 2,519,244
U.S. Government Agencies 2,409,361 0 2,409,361 1,996,832
Equity Securities 0 169,850 169,850 82,000
Mortgage-Backed Securities 478,992 0 478,992 569,225
------------- ---------- ------------ ------------
TOTAL $ 4,853,563 $ 169,850 $ 5,023,413 $ 5,167,301
============= ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
1994 AVAILABLE-FOR-SALE
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 2,005,662 $ 0 $ (40,452) $ 1,965,210
U.S. Government Agencies 2,484,484 0 (75,123) 2,409,361
Mortgage-Backed Securities 492,063 0 (13,071) 478,992
------------ ------------ ----------- ------------
TOTAL - DECEMBER 31, 1994 $ 4,982,209 $ 0 $ (128,646) $ 4,853,563
============ ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
1994 HELD-TO-MATURITY
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Equity Securities $ 169,850 $ 0 $ 0 $ 169,850
============ ============ ============ ============
</TABLE>
F-19
<PAGE> 149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities and
U.S. Government Agencies $ 4,516,076 $ 5,473 $ (9,668) $ 4,511,881
Equity Securities 82,000 0 0 82,000
Mortgage-Backed Securities 569,225 19,171 0 588,396
------------ ------------ ----------- ------------
TOTAL - DECEMBER 31, 1993 $ 5,167,301 $ 24,644 $ (9,668) $ 5,182,277
============ ============ =========== ============
</TABLE>
The carrying value and estimated market value of investment
securities at December 31, 1994, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------------------------------
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------ ------------------------------
ESTIMATED ESTIMATED
CARRYING MARKET AMORTIZED MARKET
VALUE VALUE COST VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Due in One Year or Less $ 1,965 $ 1,965 $ 507 $ 513
Due After One Year Through Five Years 2,409 2,409 4,009 3,999
Due After Five Years Through Ten Years 0 0 0 0
Due After Ten Years 0 0 0 0
------------ ------------ ------------ ------------
4,374 4,374 4,516 4,512
Equity Securities 170 170 82 82
Mortgage-Backed Securities 479 479 569 588
------------ ------------ ------------ ------------
TOTAL $ 5,023 $ 5,023 $ 5,167 $ 5,182
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
-------------------------------- --------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Due in One Year or Less $ 1,965 $ 1,965 $ 0 $ 0
Due After One Year Through
Five Years 2,409 2,409 0 0
Due After Five Years Through
Ten Years 0 0 0 0
Due After Ten Years 0 0 0 0
------------- ------------- ------------- -------------
4,374 4,374 0 0
Equity Securities 0 0 170 170
Mortgage-Backed Securities 479 479 0 0
------------- ------------- ------------- -------------
TOTAL $ 4,853 $ 4,853 $ 170 $ 170
============= ============= ============= =============
</TABLE>
F-20
<PAGE> 150
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 3 - INVESTMENT SECURITIES (CONCLUDED)
In computing recognized gains and losses, cost is determined using
specific identification of securities. For 1994 and 1993, there
were no sales of investment securities. There were no sales or
transfers of assets classified as held-to-maturity during 1994.
As of December 31, 1994, investment securities with a carrying
value of $1,334,640 were pledged as collateral for public funds and
federal funds purchased.
UNREALIZED GAIN ON SECURITIES AVAILABLE-FOR-SALE
As discussed in Note 1, effective January 1, 1994, the Company
adopted the investment categorization and carrying value rules as
required by FASB No. 115. Under this statement, the unrealized
gain or loss on investment securities available-for-sale, net of
the applicable deferred income taxes, is shown as a separate
component of stockholder's equity in the Consolidated Balance
Sheets. The following is a summary of the effects of the statement
of stockholders' equity as of December 31, 1994:
<TABLE>
<S> <C>
Gross Unrealized Gains (Losses) on Investment
Securities Available-For-Sale $ (128,647)
Deferred Income Tax Asset (Liability) on Unrealized
Gain 48,410
------------
NET (DECREASE) IN STOCKHOLDERS' EQUITY $ (80,237)
============
</TABLE>
NOTE 4 - LOANS
Major classifications of loans at December 31, 1994 and 1993 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993
--------------- --------------
<S> <C> <C>
Real Estate $ 15,035,879 $ 9,740,025
Commercial 1,871,171 2,977,628
Installment 5,709,879 3,480,422
Other 13,753 40,227
--------------- --------------
Total Loans 22,630,682 16,238,302
(Unearned Discount) (30,056) (17,976)
--------------- --------------
22,600,626 16,220,326
(Allowance For Possible Loan Losses) (410,280) (386,754)
--------------- --------------
TOTAL LOANS, NET $ 22,190,346 $ 15,833,572
=============== ==============
</TABLE>
F-21
<PAGE> 151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 4 - LOANS (CONCLUDED)
During 1994 and 1993, the Bank held loans and engaged in
transactions in the ordinary course of business with certain of its
directors and officers, and their affiliated businesses. Loans to
such persons and businesses aggregate approximately $666,522 and
$411,927 at December 31, 1994 and 1993, respectively. During 1994,
new loans to such related parties amounted to $399,389 and
repayments amounted to $144,794.
Loans on which the accrual of interest had been discontinued
aggregated $7,255 and $198,978 at December 31, 1994 and 1993,
respectively. If interest on these loans had been accrued, such
income would have approximated $512 and $24,322 for 1994 and 1993,
respectively.
Changes in allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 386,754 $ 303,201
Provision Charged to Operations 0 21,000
Loans Charged Off (17,123) (14,777)
Recoveries 40,649 77,330
------------ ------------
BALANCE, END OF YEAR $ 410,280 $ 386,754
============ ============
</TABLE>
NOTE 5 - BANK PREMISES AND EQUIPMENT
Major classifications at December 31, 1994 and 1993 are summarized
as follows:
<TABLE>
<CAPTION>
1994 1993
------------- --------------
<S> <C> <C>
Land $ 458,576 $ 458,576
Buildings 698,630 698,630
Furniture, Fixtures and Equipment 934,661 926,826
Leasehold Improvements 0 6,764
------------- --------------
Total Bank Premises and Equipment 2,091,867 2,090,796
(Accumulated Depreciation) (1,070,611) (1,002,484)
------------- --------------
TOTAL BANK PREMISES AND EQUIPMENT - COST
LESS DEPRECIATION $ 1,021,256 $ 1,088,312
============= ==============
</TABLE>
NOTE 6 - LEASES
The Bank leases one office location and various other equipment
under operating lease agreements expiring at various times through
1996. The minimum future rental payments under these agreements as
of December 31, 1994 are summarized as follows:
F-22
<PAGE> 152
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 6 - LEASES (CONCLUDED)
<TABLE>
<CAPTION>
FUTURE RENTAL
YEAR PAYMENTS
---- ----------------
<S> <C>
1995 $ 40,957
1996 3,413
----------------
TOTAL MINIMUM LEASE PAYMENTS $ 44,370
================
</TABLE>
Rent expense was $45,429 and $95,227 for the years ended December
31, 1994 and 1993, respectively.
NOTE 7 - INCOME TAXES
As of December 31, 1994, the Bank has net operating loss
carryforwards of approximately $1.4 million for federal income tax
purposes. These carryforwards may be used to offset taxable income
in future periods expiring at various times through the year 2010.
As discussed in Note 1, effective January 1, 1993, the Bank adopted
the asset and liability method of accounting for income taxes as
required by FASB No. 109. The Bank recognized $370,826 for the
cumulative effect of the change in accounting for income taxes for
prior years in the Consolidated Statement of Income for 1993.
The total provision (benefit) for income taxes in the Consolidated
Statements of Income is as follows:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
CURRENT INCOME TAX EXPENSE
U.S. Federal $ 0 $ 0
State of Florida 0 0
------------- -------------
TOTAL CURRENT INCOME TAX EXPENSE 0 0
------------- -------------
DEFERRED INCOME TAX (BENEFIT)
U.S. Federal 129,713 59,758
State of Florida 9,537 4,566
------------- -------------
TOTAL DEFERRED INCOME TAX (BENEFIT) 139,250 64,324
------------- -------------
TOTAL INCOME TAX EXPENSE $ 139,250 $ 64,234
============= =============
</TABLE>
F-23
<PAGE> 153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 7 - INCOME TAXES (CONCLUDED)
<TABLE>
<CAPTION>
1994 1993
------------------------- ------------------------
AMOUNT % AMOUNT %
------------- ----- ------------- ------
<S> <C> <C> <C> <C>
Computed "Expected" Income Tax Expense $ 143,923 34.0% $ 87,277 32.7%
State Income Taxes, Net of Federal
Income Tax 10,582 2.5 6,669 2.5
Other (15,255) (3.6) (29,622) (11.1)
------------- ---- ------------- -----
TOTAL $ 139,250 32.9% $ 64,324 24.1%
============= ==== ============= ====
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Depreciation $ 70,027 $ 56,249
Deferred Expenses and Income 66,383 56,658
Allowance For Possible Loan Losses 78,293 78,293
------------- -------------
GROSS DEFERRED TAX LIABILITIES 214,703 191,200
------------- -------------
DEFERRED TAX (ASSETS)
Tax Net Operating Loss 358,155 471,126
Deferred Expenses Payable 23,800 26,576
Investment Securities Available-For-Sale 48,410 0
------------- -------------
GROSS DEFERRED TAX (ASSETS) (430,365) (497,702)
------------- -------------
NET DEFERRED TAX LIABILITIES (ASSETS) $ (215,662) $ (306,502)
============= =============
</TABLE>
The sources of timing differences and the related income tax effect
for the years indicated are as follows:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Provision For Possible Loan Losses For
Income Tax Purposes Greater (Less)
Than For Financial Statement Purposes $ 0 $ 7,902
Adjustment For Accrual to Cash Income
and Expenses (12,501) 19,303
Depreciation Deducted For Tax Purposes
Greater (Less) Than Recognized as
Expense For Financial Statement Purposes (13,778) 0
Utilization of Net Operating Loss (112,971) (91,529)
------------- -------------
TOTAL $ (139,250) $ (64,324)
============= =============
</TABLE>
F-24
<PAGE> 154
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 8 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs
of its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to
extend credit, standby letters of credit, lines of credit and
mortgages with interest rate caps. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the Consolidated Statements of
Cash Flows. The contract or notional amounts of those instruments
reflect the extent of involvement the Bank has in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit, standby letters of credit and lines of credit is
represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for
on-balance-sheet instruments. For interest rate caps, the contract
or notional amounts do not represent exposure to credit loss.
While the Bank does not have a specific policy for requiring
collateral, for the most part, loans are collateralized by the
items the loan proceeds are to be used to purchase (i.e., real
estate) or some other acceptable property. The Bank also makes
unsecured loans if the customer's credit is sufficient.
<TABLE>
<CAPTION>
1994 1993
------------- --------------
<S> <C> <C>
FINANCIAL INSTRUMENTS WHOSE CONTRACT AMOUNTS
REPRESENT CREDIT RISK
Commitments to Extend Credit $ 935,534 $ 1,998,890
Standby Letters of Credit $ 361,000 $ 432,000
Unused Lines of Credit $ 2,817,030 $ 1,355,370
FINANCIAL INSTRUMENTS WHOSE NOTIONAL OR CONTRACT
AMOUNTS EXCEED THE AMOUNT OF CREDIT RISK
Mortgages With Interest Rate Caps $ 4,681,000 $ 3,247,000
</TABLE>
F-25
<PAGE> 155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 8 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONCLUDED)
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
some of the commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counter-party. Collateral
held may be a private residence, but could include accounts
receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit and lines of credit written are
conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and
similar transactions. With the exception of home equity loans,
which are open-ended, all letters and lines of credit are
short-term (one year or less). The credit risk involved in issuing
letters and lines of credit is essentially the same as that
involved in extending loan facilities to customers.
Mortgages with interest rate caps are adjustable rate mortgages
that have interest rate increase caps of 2% per year to a maximum
of 6% over the life of the loan.
NOTE 9 - CONCENTRATIONS OF CREDIT
Most of the Bank's business activity is with customers in Marion
County, Florida. The Bank grants commercial, real estate and
personal installment loans to customers who live in this area.
Although the Bank has a diversified loan portfolio, a substantial
portion of its debtor's ability to honor their contracts is
dependent upon the real estate economic sector.
NOTE 10 - STOCK OFFERING/STOCK WARRANTS
In April 1992, the Company prepared an offering circular in which
it offered to existing shareholders of record of the Company at
December 31, 1991, and to selected residents in the community of
Ocala, Florida, up to 250,000 units (the units), with each unit
consisting of one
F-26
<PAGE> 156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 10 - STOCK OFFERING/STOCK WARRANTS (CONCLUDED)
share of common stock of the Company, $.10 par value, and one
warrant to purchase one share of common stock. The Company
increased its authorized number of shares of common stock from
250,000 shares to 750,000 shares to accommodate the offering. The
purchase price of a unit was $10.00 per share. The warrants were
exchangeable on a one-to-one basis for common stock at a price of
$10.00 per share for a period of three years following the
expiration of the offering. The Company has the right to redeem
the warrants at $.10 per warrant upon thirty days written notice
during the period from May 1, 1994 to March 31, 1995 (the
Redemption Period). A holder of a warrant has the right to
exercise the warrant during the period from March 31, 1994 to April
30, 1994 (the 1994 Exercise Period) and, if not previously redeemed
by the Company during the Redemption Period, during the period from
March 31, 1995 to April 30, 1995 (the 1995 Exercise Period).
A total of 73,425 units were sold during 1992 resulting in the
issuance of 73,425 shares of $.10 par value common stock and 73,425
warrants.
NOTE 11 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of Citizens First Bancshares, Inc.
(Parent Company Only) for December 31, 1994 and 1993 are presented
as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
1994 1993
------------- -------------
<S> <C> <C>
Cash $ 361 $ 7,731
Investments in Wholly-Owned Subsidiary, at
Equity in Underlying Assets 2,944,479 2,733,293
------------- -------------
TOTAL ASSETS 2,944,840 2,741,024
============= =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
LIABILITIES
Other 737 737
------------- -------------
STOCKHOLDERS' INVESTMENT
Common Stock 22,343 22,343
Capital Surplus 3,015,526 3,015,526
Unrealized Losses on Certain
Securities (80,237) 0
(Deficit) (13,529) (297,582)
------------- -------------
TOTAL STOCKHOLDERS' INVESTMENT 2,944,103 2,740,287
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 2,944,840 $ 2,741,024
============= =============
</TABLE>
F-27
<PAGE> 157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 11 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONCLUDED)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
INCOME
Interest $ 0 $ 0
Other 2,500 0
------------- -------------
TOTAL INCOME 2,500 0
------------- -------------
EXPENSES
Other Expense (9,870) (6,661)
------------- -------------
(LOSS) INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARY (7,370) (6,661)
EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARY 291,423 579,898
------------- -------------
NET INCOME $ 284,053 $ 573,237
============= =============
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 284,053 $ 573,237
Adjustments to Reconcile Net Income to
Net Cash (Used In) Operating Activities:
Income From Subsidiary (291,423) (579,898)
Other (1) 1
------------- -------------
NET CASH (USED IN) OPERATING ACTIVITIES (7,371) (6,660)
------------- -------------
(DECREASE) IN CASH (7,371) (6,660)
CASH, BEGINNING OF YEAR 7,732 14,392
------------- -------------
CASH, END OF YEAR $ 361 $ 7,732
============= =============
</TABLE>
NOTE 12 - PENSION PLAN
The Company established a 401(k) pension plan in 1993 that covers
all eligible officers and employees. Employees may elect to defer
up to 15% of their annual compensation. The Company may match 10%
of the compensation deferred by the employee up to a maximum of 6%
of the employee's annual compensation. Contributions to the plan
by the Company charged to operations were $1,797 in 1994 and $0 in
1993.
F-28
<PAGE> 158
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONCLUDED)
NOTE 13 - STOCK OPTIONS
The Company adopted a stock option plan on May 13, 1993, granting
its officers the option to purchase shares of its common stock at
an option price of $10.05 per share. The maximum number of shares
that may be optioned or sold under the plan is 50,000 shares. Of
the options granted during the year, 40% of that amount vests
immediately. The remaining vesting schedule is at the rate of 20%
per year beginning December 1, 1993, and increasing each December 1
thereafter.
During 1994, one employee terminated employment. The terminating
employees' 9,600 shares under option granted to date must be
exercised by April 29, 1995.
Per the stock option plan, the options shall remain in effect for
seven years from the plan adoption date, unless terminated sooner.
Termination of the plan shall not effect any option previously
granted. Options are immediately exercisable on sale of the Bank.
<TABLE>
<CAPTION>
SHARES
UNDER OPTION
------------
<S> <C>
Outstanding, Beginning of Year 30,000
Forfeited During the Year (2,400)
------
Outstanding, End of Year 27,600
======
</TABLE>
F-29
<PAGE> 159
CONDENSED CONSOLIDATED BALANCE SHEETS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
As of September 30,
--------------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash and Demand Deposits Due from Banks $ 14,370 $ 10,573
Investment Securities (Market Value 9/30/95 - $208,577;
12/31/94 - $203,881; 9/30/94 - $205,522) 206,137 206,440
Federal Funds Sold 7,754 0
Loan Receivables 221,843 195,117
Less: Unearned Income (881) (1,100)
Allowance for Loan Losses (3,234) (2,938)
------------- --------------
Loan Receivables, Net 217,728 191,079
Real Estate Owned 613 797
Premises and Equipment, Net 6,880 6,924
Accrued Interest Receivable 4,336 3,924
Other Assets 2,073 2,687
------------- --------------
Total Assets $ 459,891 $ 422,424
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-Bearing $ 35,528 $ 33,202
Interest-Bearing 368,694 347,567
------------- --------------
Total Deposits 404,222 380,769
Federal Funds Purchased and Securities Sold
under Agreements to Repurchase 7,834 2,831
Accrued Interest Payable 3,869 2,062
Other Liabilities 866 295
------------- --------------
Total Liabilities 416,791 385,957
------------- --------------
Stockholders' Equity
Common Stock - Par Value $.01 Per Share; Authorized
10,000,000 Shares; Issued 4,184,631 Shares $ 42 $ 42
Capital Surplus 11,208 11,208
Retained Earnings 32,106 27,212
Less: Treasury Stock at Cost (792) (792)
(136,988 Shares in 1995 and 1994)
Unrealized Gains (Losses) on Certain Securities 536 (1,203)
------------- --------------
Total Stockholders' Equity 43,100 36,467
------------- --------------
Total Liabilities and Stockholders' Equity $ 459,891 $ 422,424
============= ==============
</TABLE>
F-30
<PAGE> 160
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Interest Income
Loans, Including Fees $ 14,095 $ 10,849
----------- -----------
Investment Securities:
Taxable 8,531 8,741
Exempt from Federal Income Taxes 2,113 2,049
----------- -----------
Total Investment Securities 10,644 10,790
Federal Funds Sold 439 173
----------- -----------
Total Interest Income 25,178 21,812
----------- -----------
Interest Expense
Deposits 11,927 8,933
Securities sold Under Repurchase Agreements 257 104
----------- -----------
Total Interest Expense 12,184 9,037
----------- -----------
Net Interest Income 12,994 12,775
Provision for Loan Losses (255) (523)
----------- -----------
Net Interest Income After Provision for Loan Losses 12,739 12,252
----------- -----------
Noninterest Income
Investment Securities Gains (Losses) 29 (124)
Service Charges on Deposit Accounts 839 835
Trust Income 629 539
Other Income 191 171
----------- -----------
Total Noninterest Income 1,688 1,421
----------- -----------
Noninterest Expense
Salaries and Employee Benefits 4,300 3,994
Occupancy Expense 862 809
Equipment Expense 691 682
Other expenses 2,107 2,179
----------- -----------
Total Noninterest Expense 7,960 7,664
----------- -----------
Income Before Income Taxes 6,467 6,009
Provision for Income Taxes (1,699) (1,547)
----------- -----------
Net Income $ 4,768 $ 4,462
=========== ===========
Earnings Per Common Share and Common Share Equivalent 1.18 1.10
=========== ===========
Average Number of Shares 4,052,326 4,047,643
=========== ===========
</TABLE>
F-31
<PAGE> 161
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 4,768 $ 4,462
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses 255 523
Depreciation 489 518
Net (Accretion)/Amortization of Discount on (330) (271)
Investments
(Gain) Loss on Sale of Investments and Real (30) 74
Estate Owned
Decrease (Increase) in Accrued Interest (362) (253)
Receivable
Increase (Decrease) in Accrued Interest Payable 1,476 121
Other 158 (406)
-------- ---------
Net Cash Provided by Operating Activities 6,424 4,768
-------- --------
Cash Flows From Investing Activities
Proceeds from Sales of Investment Securities available for sale 60,901 17,204
Proceeds from Calls of Investment Securities Held to maturity 4,250 6,120
Proceeds from Maturities of Investment Securities 17,728 22,270
Purchases of Investment Securities (75,269) (47,356)
Net (Increase) in Loan Receivables (21,910) (15,498)
Proceeds from Sale of Real Estate Owned 102 1,500
Purchases of Premises and Equipment (562) (772)
-------- ---------
Net Cash (Used In) Investing Activities (14,760) (22,040)
-------- ---------
Cash Flows from Financing Activities
Net Increase in Demand Deposits, NOW Accounts, and
Savings Accounts 988 2,453
Net Increase in Certificates of Deposit 14,367 14,041
Net Increase (Decrease) in Federal Funds Purchased
and Securities Sold Under Agreements to Repurchase 2,201 (2,660)
Dividends Paid (1,417) (1,255)
-------- ---------
Net Cash Provided by Financing Activities 16,139 12,579
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 7,803 (4,693)
Cash and Cash Equivalents, Beginning of Period 14,321 15,266
-------- --------
Cash and Cash Equivalents, End of Period $ 22,124 $ 10,573
======== ========
Supplemental Disclosures of Cash Flow Information
Cash and Cash Equivalents
Cash and Demand Deposits Due from Banks $ 14,370 $ 10,573
Federal Funds Sold 7,754 0
-------- --------
Total Cash and Cash Equivalents $ 22,124 $ 10,573
======== ========
Interest Paid $ 10,709 $ 8,916
======== ========
Income Taxes Paid $ 1,476 $ 1,493
======== ========
</TABLE>
F-32
<PAGE> 162
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Citi-Bancshares, Inc.
(the Company) and its subsidiary conform to generally accepted
accounting principles and to predominant practices within the
banking industry.
In the opinion of the Company's management, all adjustments
necessary to present fairly the financial position as of
September 30, 1995 and 1994, and the results of operations and
cash flows for the period then ended have been included and are
of a normal and recurring nature.
Certain amounts for 1994 were reclassified to conform with
statement presentation for September 30, 1995. These
reclassifications have no effect on stockholders' equity or net
income as previously reported.
NOTE 2 - INCOME TAXES
Federal and state income taxes are provided on income reported
for financial statement purposes and include both current and
deferred income tax expense. Current income tax expense is
recorded to reflect income taxes based upon the tax returns filed
with the appropriate taxing agencies. Deferred income taxes are
recorded to reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and
their financial reporting amounts at year end. The change in
deferred taxes attributable to the carrying value of investments
categorized as "available-for-sale" is recognized as a change in
stockholders' equity. The change in deferred income taxes
attributable to all other timing differences is recognized as
deferred income tax expense or benefit. The tax benefit related
to operating loss and tax credit carryforwards, if any, are
recognized if management believes, based on available evidence,
that it is more likely than not that they will be realized.
Investment tax credits, if any, are accounted for using the
flow-through method.
The Company files consolidated federal and state income tax
returns with its subsidiary, Citizens National Bank of Leesburg.
Federal and state income taxes are allocated between the Company
and its subsidiary in proportion to the respective contributions
in consolidated taxable income.
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Major categories of loans included in the loan portfolio are:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C> <C>
9/30/95 9/30/94
--------- ---------
Commercial, Financial and Agricultural $ 21,722 $ 15,425
Real Estate 178,643 159,654
Installment Loans 21,478 20,038
--------- ---------
Loans Receivable $ 221,843 $ 195,117
--------- ---------
</TABLE>
F-33
<PAGE> 163
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONCLUDED)
Changes in the allowance for loan losses are summarized as
follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C> <C>
9/30/95 9/30/94
------- -------
Balance, Beginning of Period $ 2,994 $ 2,490
Additions:
Provision Charged to Expense 255 523
Recoveries on Loans Previously Charged Off 58 90
Total Additions 313 613
(Loans Charged Off) (73) (165)
-------- --------
Balance, End of Period $ 3,234 $ 2,938
-------- --------
</TABLE>
NOTE 4 - REALIZED AND UNREALIZED GAINS (LOSSES) ON SECURITIES
UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE
Effective December 31, 1993, the Company adopted the investment
categorization and carrying value rules as required by Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 115 (FASB No. 115), Accounting for Certain
Investments in debt and Equity Securities. Under this statement,
the unrealized gain or loss on investment securities
available-for-sale, net of the applicable deferred income taxes,
is shown as a separate component of stockholders' equity in the
balance sheet. The following is a summary of the effects of the
statement of stockholders' equity as of September 30, 1995 and
September 30, 1994:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C> <C>
9/30/95 9/30/94
------- -------
Gross Unrealized Gains (Losses) on Investment $ 841 $ (1,886)
Securities Available-For-Sale
Deferred Income Tax (Liability) Asset on Unrealized Gain (305) 683
------- --------
Net Increase (Decrease) in Stockholders' Equity $ 536 $ (1,203)
======= ========
</TABLE>
REALIZED GAINS (LOSSES) ON CALLS OF SECURITIES HELD-TO-MATURITY
Proceeds from sales of investment securities classified as
available-for sale during 1995 were $60,901, with gross gains of
$535 and gross losses of $518. During 1994, proceeds from sales of
investment securities classified as available-for-sale totaled
$17,204, with gross gains of $73 and gross losses of $208.
F-34
<PAGE> 164
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
NOTE 4 - REALIZED AND UNREALIZED GAINS (LOSSES) ON SECURITIES (Concluded)
REALIZED GAINS (LOSSES) ON CALLS OF SECURITIES HELD-TO-MATURITY
(Concluded)
There were no sales of securities classified as held-to-maturity
during 1995 or 1994. During 1995 and 1994, proceeds from calls
of securities classified as held-to-maturity totaled $4,250 and
$612, respectively, with resulting gains of $11 and $12,
respectively.
NOTE 5 - PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C> <C>
9/30/95 9/30/94
------- -------
Land $ 1,059 $ 840
Buildings 6,847 6,657
Furniture, Fixtures and Equipment 5,065 5,298
------- -------
12,971 2,795
(Accumulated Depreciation) (6,091) (5,871)
------- -------
TOTAL PREMISES AND EQUIPMENT $ 6,880 $ 6,924
------- -------
</TABLE>
NOTE 6 - DEPOSITS
<TABLE>
<CAPTION>
(In Thousands)
<S> <C> <C>
9/30/95 9/30/94
------- -------
Demand $ 50,807 $ 49,611
Savings 90,387 113,097
Time 227,500 184,859
-------- --------
TOTAL INTEREST-BEARING ACCOUNTS $368,694 $347,567
======== ========
</TABLE>
NOTE 7 - STOCK OPTION PLAN
In 1994, the Company adopted a stock option plan for granting
nonqualified stock options to specified officers. The
nonqualified stock options are granted to the officers provided
the Bank meets certain target performance and asset quality
criteria. The stock options, after a two year vesting
requirement, are exercisable at a price equal to the book value
per share, net of FASB 115. The CBI Board normally makes its
decision on whether or not to grant the options for a given year
in February of the following year, allowing time to review the
complete financial data and achievement of certain performance
criteria. If approved, the options are granted effective the
first business day following the end of the year. The option
exercise price is the year-end book value, net of FASB 115 for
the year just completed. Should a grantee retire, the options
granted to him or her are exercisable within one year of
retirement. In 1995, options for 11,250 shares were granted
effective January 2, 1995 for the year's performance ending
December 31, 1994. The Company follows APB 25 in recognizing
stock options.
F-35
<PAGE> 165
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
NOTE 7 - STOCK OPTION PLAN (CONCLUDED)
These securities were included in the calculation of primary
earnings per share as a common stock equivalent.
NOTE 8 - COMMITMENTS
On September 15, 1995, the Company signed a nonbinding letter of
intent to acquire a local financial institution. The agreement
is subject to an in-depth due diligence investigation and
regulatory approval.
F-36
<PAGE> 166
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
CITI-BANCSHARES, INC. AND SUBSIDIARY
LEESBURG, FLORIDA
DECEMBER 31, 1994
F-37
<PAGE> 167
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
CITI-BANCSHARES, INC. AND SUBSIDIARY
LEESBURG, FLORIDA
DECEMBER 31, 1994
CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT F-39
CONSOLIDATED BALANCE SHEETS F-40
CONSOLIDATED STATEMENTS OF INCOME F-41
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-42
CONSOLIDATED STATEMENTS OF CASH FLOWS F-43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-44
F-38
<PAGE> 168
[PURVIS GRAY & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Citi-Bancshares, Inc. and Subsidiary
Leesburg, Florida
We have audited the accompanying consolidated balance sheets of
Citi-Bancshares, Inc. (the Company) and Subsidiary (the Bank) as of December
31, 1994 and 1993, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years ended December 31, 1994,
1993 and 1992. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Citi-Bancshares, Inc. and
Subsidiary at December 31, 1994 and 1993, and the results of its operations and
cash flows for the years ended December 31, 1994, 1993 and 1992, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company adopted Statements of Financial Accounting Standards Nos. 109 and 115
thereby changing its method of accounting for deferred income taxes and certain
investment securities, respectively.
January 31, 1995
Gainesville, Florida /s/ Purvis Gray and Company
F-39
<PAGE> 169
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
ASSETS
1994 1993
------------- -------------
<S> <C> <C>
Cash and Demand Deposits Due From Banks $ 14,321,737 $ 14,168,482
Investment Securities (Market Value 1994 -
$203,880,893; 1993 - $209,712,181) 206,546,777 206,527,107
Federal Funds Sold 0 1,098,000
Loans Receivable 199,976,206 179,866,497
Less:
Unearned Income (1,024,096) (1,266,269)
Allowance For Loan Losses (2,994,255) (2,489,991)
------------- -------------
Loans Receivable, Net 195,957,855 176,110,237
Real Estate Owned 686,735 2,045,918
Premises and Equipment, Net 6,806,835 6,669,861
Accrued Interest Receivable 3,973,722 3,671,123
Other Assets 4,534,679 617,547
------------- -------------
TOTAL ASSETS 432,828,340 410,908,275
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-Bearing 34,539,616 30,749,450
Interest-Bearing 354,327,506 333,525,207
------------- -------------
Total Deposits 388,867,122 364,274,657
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 5,633,216 5,491,063
Accrued Interest Payable 2,392,673 1,940,981
Other Liabilities 1,959,073 2,407,123
------------- -------------
TOTAL LIABILITIES 398,852,084 374,113,824
------------- -------------
STOCKHOLDERS' EQUITY
Common Stock - Par Value $.01 Per Share -
Authorized: 10,000,000 Shares; Issued
4,184,635 Shares 41,846 41,846
Capital Surplus 11,207,783 11,207,783
Retained Earnings 27,339,017 22,750,378
Less: Treasury Stock at Cost (136,988 Shares
in 1994; and 136,988 Shares in 1993) (791,924) (791,924)
Unrealized (Losses) Gains on Certain Securities (3,820,466) 3,586,368
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 33,976,256 36,794,451
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 432,828,340 $ 410,908,275
============= =============
</TABLE>
See accompanying notes.
F-40
<PAGE> 170
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993
AND 1992 CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, Including Fees $ 14,891,243 $ 12,968,947 $ 12,730,988
------------ ------------ ------------
Investment Securities:
Taxable 11,705,226 11,885,845 12,687,529
Exempt From Federal Income Taxes 2,759,492 2,296,789 2,129,626
------------ ------------ ------------
14,464,718 14,182,634 14,817,155
Federal Funds Sold 237,931 347,456 319,876
------------ ------------ ------------
TOTAL INTEREST INCOME 29,593,892 27,499,037 27,868,019
------------ ------------ ------------
INTEREST EXPENSE
Deposits 12,299,939 11,694,799 13,366,175
Securities Sold Under Repurchase Agreements 154,648 90,720 151,039
------------ ------------ ------------
TOTAL INTEREST EXPENSE 12,454,587 11,785,519 13,517,214
------------ ------------ ------------
NET INTEREST INCOME 17,139,305 15,713,518 14,350,805
PROVISION FOR LOAN LOSSES 600,000 1,075,000 1,400,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 16,539,305 14,638,518 12,950,805
------------ ------------ ------------
NONINTEREST INCOME
Investment Securities Gains (Losses) (167,875) 445,454 1,117,228
Service Charges on Deposit Accounts 1,106,506 1,162,074 1,111,309
Trust Income 715,607 587,912 449,044
Other Income 351,264 378,297 407,806
------------ ------------ ------------
TOTAL NONINTEREST INCOME 2,005,502 2,573,737 3,085,387
------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and Employee Benefits 5,342,043 5,045,330 4,549,652
Occupancy Expense 1,078,052 1,166,059 1,062,070
Equipment Expense 911,493 756,187 774,250
Other Expenses 3,125,617 2,929,694 2,940,468
------------ ------------ ------------
TOTAL NONINTEREST EXPENSE 10,457,205 9,897,270 9,326,440
------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 8,087,602 7,314,985 6,709,752
PROVISION FOR INCOME TAXES 2,082,284 1,841,962 1,776,783
------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLES 6,005,318 5,473,023 4,932,969
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGING
METHOD OF ACCOUNTING FOR INCOME TAXES 0 255,072 0
------------ ------------ ------------
NET INCOME $ 6,005,318 $ 5,728,095 $ 4,932,969
============ ============ ============
EARNINGS PER SHARE:
Income Before Cumulative Effect of Change
in Accounting Principle $ 1.48 $ 1.35 $ 1.22
Cumulative Effect on Prior Years of
Changing Method of Accounting For
Income Taxes .00 .06 .00
------------ ------------ ------------
EARNINGS PER SHARE $ 1.48 $ 1.41 $ 1.22
============ ============ ============
AVERAGE SHARES OUTSTANDING $ 4,047,647 4,050,051 4,052,827
============ ============ ============
</TABLE>
See accompanying notes.
F-41
<PAGE> 171
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER31, 1994, 1993 AND 1992
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) ON
COMMON CAPITAL RETAINED TREASURY CERTAIN
STOCK SURPLUS EARNINGS STOCK SECURITIES TOTAL
-------- ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1991 $ 41,846 $ 11,207,783 $ 14,478,876 $ (742,676) $ 0 $ 24,985,829
Net Income 4,932,969 4,932,969
Cash Dividends Declared ($.28 Per Share) (1,134,791) (1,134,791)
-------- ------------ ------------ ---------- ------------ ------------
BALANCES, DECEMBER 31, 1992 41,846 11,207,783 18,277,054 (742,676) 0 28,784,007
Net Income 5,728,095 5,728,095
Cash Dividends Declared ($.31 Per Share) (1,254,771) (1,254,771)
Purchase of Treasury Stock, 2,205 Shares (49,248) (49,248)
Unrealized Gain on Certain Securities 3,586,368 3,586,368
-------- ------------ ------------ ---------- ------------ ------------
BALANCES, DECEMBER 31, 1993 41,846 11,207,783 22,750,378 (791,924) 3,586,368 36,794,451
Net Income 6,005,318 6,005,318
Cash Dividends Declared ($.35 Per Share) (1,416,679) (1,416,679)
Unrealized (Loss) on Certain Securities (7,406,834) (7,406,834)
-------- ------------ ------------ ---------- ------------ ------------
BALANCES, DECEMBER 31, 1994 $ 41,846 $ 11,207,783 $ 27,339,017 $ (791,924) $ (3,820,466) $ 33,976,256
======== ============ ============ ========== ============ ============
</TABLE>
See accompanying notes.
F-42
<PAGE> 172
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 6,005,318 $ 5,728,095 $ 4,932,969
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Provision For Loan Losses 600,000 1,075,000 1,400,000
Depreciation 694,055 579,322 594,759
Accretion of Discount on Investments (387,880) (31,233) (1,984)
(Gain) Loss on Sale of Investments and Other
Real Estate 167,875 (445,453) (1,136,691)
Provision (Benefit) For Deferred Income Taxes (126,381) (321,362) (24,009)
Net Amortization of Deferred Loan Fees (176,802) (38,807) (101,502)
Decrease (Increase) in Accrued Interest Receivable (302,599) (169,862) 461,219
(Decrease) Increase in Accrued Interest Payable 451,692 (76,125) (713,318)
Other (12,882) (396,708) 207,260
--------------- --------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,912,396 5,902,867 5,618,703
--------------- --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sales of Investment Securities 21,754,099 37,944,615 69,003,092
Proceeds From Maturities of Investment Securities 29,297,426 44,842,510 33,902,366
Purchases of Investment Securities (62,469,051) (100,382,610) (111,095,419)
Net Increase in Loans Receivable (20,628,192) (19,727,797) (16,236,516)
Payment of Other Costs on Real Estate Owned (172,013) (76,278) (22,117)
Proceeds From Sale of Real Estate Owned 1,711,770 797,120 487,229
Purchases of Premises and Equipment (831,029) (372,561) (300,857)
--------------- --------------- -------------
NET CASH (USED IN) INVESTING ACTIVITIES (31,336,990) (36,975,001) (24,262,222)
--------------- --------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Demand Deposits, NOW
Accounts, and Savings Accounts 355,004 14,532,249 30,898,342
Net Increase in Certificates of Deposit 24,237,461 6,877,954 2,382,801
Net Increase (Decrease) in Federal Funds Purchased
and Securities Sold Under Agreements to Repurchase 142,153 2,880,892 (5,598,776)
Dividends Paid (1,254,769) (1,134,792) (772,022)
Purchases of Treasury Stock 0 (49,248) 0
--------------- --------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 23,479,849 23,107,055 26,910,345
--------------- --------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (944,745) (7,965,079) 8,266,826
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 15,266,482 23,231,561 14,964,735
--------------- --------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 14,321,737 $ 15,266,482 $ 23,231,561
=============== =============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH AND CASH EQUIVALENTS
Cash and Demand Deposits Due From Banks $ 14,321,737 $ 14,168,482 $9,987,561
Federal Funds Sold 0 1,098,000 13,244,000
--------------- --------------- -------------
TOTAL CASH AND CASH EQUIVALENTS $ 14,321,737 $ 15,266,482 $ 23,231,561
=============== =============== =============
INTEREST PAID $11,850,646 $ 11,770,924 $ 14,079,493
=============== =============== =============
INCOME TAXES PAID $2,292,048 $ 2,282,506 $ 1,707,001
=============== =============== =============
</TABLE>
See accompanying notes.
F-43
<PAGE> 173
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Citi-Bancshares, Inc. (the Company) and its wholly-owned
subsidiary, Citizens National Bank of Leesburg (the Bank). All
significant intercompany accounts and transactions have been
eliminated. Assets held in an agency or fiduciary capacity are
not assets of the Bank and, accordingly, are not included in the
accompanying financial statements.
CASH EQUIVALENTS
Cash equivalents include cash, demand deposits due from banks and
federal funds sold. Generally, federal funds sold mature within
ninety days.
SECURITIES
Effective December 31, 1993, the Company adopted the investment
categorization and carrying value rules as required by Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 115 (FASB No. 115), Accounting for Certain
Investments in Debt and Equity Securities. Under FASB 115, the
Company is required to classify acquired debt and equity
securities into one of three categories: held-to-maturity,
available-for-sale and trading.
- Investments in debt securities are classified as
held-to-maturity only if the Company has the positive intent
and ability to hold such securities to maturity. These
investments are carried in the balance sheet at amortized cost,
i.e., cost adjusted for amortization of premiums and accretion
of discounts as computed by the interest method.
- All investments not classified as either held-to-maturity
securities or trading securities are classified as
available-for-sale. These securities are carried at market
value as of the date of the balance sheet. The unrealized
gains and losses on these securities are excluded from earnings
for the year. Instead, the net unrealized gain or loss, net of
the applicable deferred income taxes, is shown as a separate
component of stockholders' equity in the balance sheet.
- Securities that are acquired and held principally for the
purpose of selling them in the near term are classified as
trading securities. Such securities, if any, are carried at
market value and the unrealized gains and losses on such
securities are included in income for the current year.
Prior to the adoption of FASB No. 115, investment debt securities
were stated at cost adjusted for amortization of premiums and
accretion of discounts as computed by the interest method.
Investments in marketable equity securities were carried at the
lower of cost or market value. Unrealized losses on such equity
securities considered to be temporary were charged against
stockholders' equity; declines in market value considered to be
other than temporary were charged to earnings.
F-44
<PAGE> 174
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES (CONCLUDED)
Gains and losses on the sale of investment securities are computed
on the basis of specific identification of the adjusted cost of
each security.
LOANS RECEIVABLE
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is
discontinued either when reasonable doubt exists as to the full,
timely collection of interest or principal, or when a loan becomes
contractually past due by ninety days or more with respect to
interest or principal. When a loan is placed on nonaccrual
status, all interest previously accrued but not collected is
reversed against current period interest income. Income on such
loans is then recognized only to the extent that cash is received
and where the future collection of principal is probable.
Interest accruals are resumed on such loans only when they are
brought fully current with respect to interest and principal and
when, in the judgment of management, the loans are estimated to be
fully collectible as to both principal and interest.
The adoption of Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 114 (FASB No. 114), Accounting
by Creditors for Impairment of a Loan, is required in 1995.
Company management does not anticipate that its adoption will have
a material effect on the Company's financial position or results
of operations.
Interest income on loans is recognized based upon the principal
amounts outstanding, except that on consumer loans, the sum of the
month's digits method is used.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision
for loan losses charged to expenses. Loans are charged against
the allowance for loan losses when management believes that the
collectibility of the principal is unlikely or, with respect to
consumer installment loans, according to an established
delinquency schedule. The allowance is an amount that management
believes will be adequate to absorb losses inherent in existing
loans and commitments to extend credit, based on evaluations of
the collectibility and prior loss experience of loans and
commitments to extend credit. The evaluations take into
consideration such factors as changes in the nature and volume of
the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, commitments, and current and anticipated
economic conditions that may affect the borrower's ability to pay.
Recoveries of previous charge-offs are added back to the
allowance.
REAL ESTATE OWNED
Real estate acquired by foreclosure or deed in lieu of foreclosure
is carried at the lower of its estimated fair value less estimated
costs to sell or the balance of the related loan at the date the
real estate is acquired. Costs relating to the development and
improvement of the real estate are capitalized, whereas those
costs relating to holding the real estate are charged to expense.
F-45
<PAGE> 175
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE OWNED (CONCLUDED)
Sales of real estate owned are recorded under the full accrual
method of accounting. Under this method, a sale is not recognized
until payments received aggregate a specific required percentage
of the contract sales price. Losses are charged to operations as
incurred or when it is determined that the investment in such real
estate is greater than the estimated net realizable value.
PREMISES AND EQUIPMENT
Land is stated at cost. The premises and equipment are stated at
cost less accumulated depreciation. Depreciation is computed on
the straight-line method over the assets' estimated useful lives.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENT TO
REPURCHASE The Bank enters into agreements to repurchase
securities sold to customers. The securities sold are United
States Treasury and agency securities which are included in the
Bank's investment portfolio and are held in safekeeping by other
large banks. The repurchase agreements outstanding at December
31, 1994 are one day agreements which are automatically renewable
unless the customer notifies the Bank. The interest rate on such
agreements varies between 1.80% and 5.75%.
Federal funds purchased mature within one to four days from the
transaction date.
INCOME TAXES
Federal and state income taxes are provided on income reported for
financial statement purposes and include both current and deferred
income tax expense. Current income tax expense is recorded to
reflect income taxes based upon the tax returns filed with the
appropriate taxing agencies. Deferred income taxes are recorded
to reflect the tax consequences on future years of differences
between the tax bases of assets and liabilities and their
financial reporting amounts at year end. The change in deferred
taxes attributable to the carrying value of investments
categorized as "Available-for-Sale" is recognized as a change in
stockholders' equity. The change in deferred income taxes
attributable to all other timing differences is recognized as
deferred income tax expense or benefit. The tax benefit related
to operating loss and tax credit carryforwards, if any, are
recognized if management believes, based on available evidence,
that it is more likely than not that they will be realized.
Investment tax credits, if any, are accounted for under the
flow-through method.
Citi-Bancshares, Inc. files consolidated federal and state income
tax returns with its subsidiary, Citizens National Bank of
Leesburg. Federal and state income taxes are allocated between
the Company and its subsidiary in proportion to the respective
contributions to consolidated taxable income.
F-46
<PAGE> 176
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
INCOME TAXES (CONCLUDED)
Effective January 1, 1993, the Company adopted the asset and
liability method of accounting for income taxes as required by
Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 109 (FASB No. 109), Accounting for
Income Taxes. The Company previously used the deferred method to
account for income taxes. The Company accounted for this change
as a cumulative effect of an accounting change in the 1993
financial statements.
MARKET VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (FASB No.
107), Disclosures About Fair Value of Financial Instruments,
requires market value disclosure for virtually all financial
instruments broadly defined to include receivables and payables,
forward contracts, options, guarantees and equity instruments.
FASB No. 107 is effective for years ended after December 15, 1992.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of
shares of common stock outstanding, adjusted retroactively for
stock dividends and stock splits.
LOAN ORIGINATION FEES
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the
related loan.
PENSION PLAN
The Bank has a noncontributory defined benefit pension plan
covering all employees who meet certain eligibility requirements.
Pension costs in the accompanying statements were computed based
on the provision of Statement of Financial Accounting Standards
No. 87 (FASB No. 87), Employers' Accounting For Pension.
CONCENTRATION OF CREDIT RISK
The Bank grants agribusiness, commercial, and residential loans
primarily to customers in Lake, Marion and Sumter Counties in the
state of Florida. Although the Bank has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor
their contracts is dependent upon the real estate economic sector
as described in Note 3.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with
current financial reporting to facilitate comparison of the
financial data.
F-47
<PAGE> 177
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 2 - SECURITIES
The carrying value of securities, including information regarding
amortized cost, gross unrealized gains, gross unrealized losses
and market value is tabulated below:
<TABLE>
<CAPTION>
CARRYING VALUE SUMMARY
----------------------------------------------------------------------
1994 1993 1992
------------------------------------------- ------------ ------------
AVAILABLE- HELD-TO-
FOR-SALE MATURITY TOTAL TOTAL TOTAL
------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 37,198,800 $ 0 $ 37,198,800 $ 44,389,718 $ 38,811,113
U.S. Government Agencies 50,735,813 11,238,149 61,973,962 49,327,658 30,696,548
Mortgage-Backed
Securities 37,656,428 8,122,239 45,778,667 55,096,199 65,558,569
Obligations of State and
Political Subdivisions 5,895,856 50,365,192 56,261,048 49,968,432 37,946,342
Corporate Securities 4,874,300 0 4,874,300 7,285,100 9,363,038
------------- ------------- ------------- ------------ ------------
Total Debt Securities 136,361,197 69,725,580 206,086,777 206,067,107 182,375,610
Equity Securities 0 460,000 460,000 460,000 460,000
------------- ------------- ------------- ------------ ------------
TOTAL SECURITIES $ 136,361,197 $ 70,185,580 $ 206,546,777 $206,527,107 $182,835,610
============= ============= ============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
1994 AVAILABLE-FOR-SALE
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 37,877,190 $ 148,074 $ 826,464 $ 37,198,800
U.S. Government Agencies 53,807,679 117,300 3,189,166 50,735,813
Mortgage-Backed Securities 39,821,707 104,726 2,270,005 37,656,428
Obligations of State and
Political Subdivisions 5,862,952 79,907 47,003 5,895,856
Corporate Securities 4,990,202 30,850 146,752 4,874,300
------------- ------------- ------------ ------------
TOTAL DEBT SECURITIES $ 142,359,730 $ 480,857 $ 6,479,390 $136,361,197
============= ============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
1994 HELD-TO-MATURITY
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 0 $ 0 $ 0 $ 0
U.S. Government Agencies 11,238,149 0 565,544 10,672,605
Mortgage-Backed Securities 8,122,239 19,482 193,955 7,947,766
Obligations of State and
Political Subdivisions 50,365,192 795,335 2,721,202 48,439,325
Corporate Securities 0 0 0 0
------------- ------------- ------------ -------------
Total Debt Securities 69,725,580 814,817 3,480,701 67,059,696
Equity Securities 460,000 0 0 460,000
------------- ------------- ------------ -------------
TOTAL SECURITIES $ 70,185,580 $ 814,817 $ 3,480,701 $ 67,519,696
============= ============= ============ =============
</TABLE>
F-48
<PAGE> 178
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 2 - SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
CARRYING VALUE SUMMARY
-----------------------------------------
1993
-----------------------------------------
AVAILABLE- HELD-TO-
FOR-SALE MATURITY TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
U.S. Treasury Securities $ 43,367,870 $ 1,021,848 $ 44,389,718
U.S. Government Agencies 48,330,295 997,363 49,327,658
Mortgage-Backed Securities 48,213,750 6,882,449 55,096,199
Obligations of State and
Political Subdivisions 6,841,190 43,127,242 49,968,432
Corporate Securities 7,285,100 0 7,285,100
------------ ----------- ------------
Total Debt Securities 154,038,205 52,028,902 206,067,107
Equity Securities 0 460,000 460,000
------------ ----------- ------------
TOTAL SECURITIES $154,038,205 $52,488,902 $206,527,107
============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
1993 AVAILABLE-FOR-SALE
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 40,890,734 $ 2,477,801 $ 665 $ 43,367,870
U.S. Government Agencies 47,337,801 1,060,111 67,617 48,330,295
Mortgage-Backed Securities 46,867,554 1,402,397 56,201 48,213,750
Obligations of State and
Political Subdivisions 6,347,849 493,341 0 6,841,190
Corporate Securities 6,974,939 310,161 0 7,285,100
------------- ------------- ------------ ------------
TOTAL DEBT SECURITIES $ 148,418,877 $ 5,743,811 $ 124,483 $154,038,205
============= ============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
1993 HELD-TO-MATURITY
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 1,021,848 $ 0 $ 1,248 $ 1,020,600
U.S. Government Agencies 997,363 2,637 0 1,000,000
Mortgage-Backed Securities 6,882,449 315,291 0 7,197,740
Obligations of State and
Political Subdivisions 43,127,242 2,925,530 57,136 45,995,636
Corporate Securities 0 0 0 0
------------- ------------- ------------ -----------
Total Debt Securities 52,028,902 3,243,458 58,384 55,213,976
Equity Securities 460,000 0 0 460,000
------------- ------------- ------------ -----------
TOTAL SECURITIES $ 52,488,902 $ 3,243,458 $ 58,384 $55,673,976
============= ============= ============ ===========
</TABLE>
F-49
<PAGE> 179
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 2 - SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
1992 IN TOTAL
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 38,811,113 $ 2,306,103 $ 16,206 $ 41,101,010
U.S. Government Agencies 30,696,548 1,038,692 0 31,735,240
Mortgage-Backed Securities 65,558,569 1,931,371 256,911 67,233,029
Obligations of State and
Political Subdivisions 37,946,342 2,243,828 65,338 40,124,832
Corporate Securities 9,363,038 447,375 0 9,810,413
------------- ------------- ------------ ------------
Total Debt Securities 182,375,610 $ 7,967,369 $ 338,455 190,004,524
Other Securities 460,000 ============= ============ 460,000
------------- ------------
TOTAL SECURITIES $ 182,835,610 $190,464,524
============= ============
</TABLE>
The carrying value, market value and weighted average yields of
investment securities at December 31, 1994, by contractual
maturity are shown below. The weighted average yield is
determined using the amortized cost of securities. Expected
maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligation with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING MARKET WEIGHTED
VALUE VALUE AVERAGE YIELD
------------ ------------ -------------
<S> <C> <C> <C>
Due in One Year or Less $ 5,256,312 $ 5,278,548 8.44%
Due After One Year Through Five Years 70,668,815 70,389,660 6.53%
Due After Five Years Through Ten Years 39,387,943 39,295,272 6.74%
Due After Ten Years 44,995,040 42,853,219 6.33%
------------ ------------
160,308,110 157,816,699
Mortgage-Backed Securities 45,778,667 45,604,194 7.01%
Equity Securities 460,000 460,000
------------ ------------
TOTAL $206,546,777 $203,880,893
============ ============
</TABLE>
Detailed information of contractual maturity for each investment
classification is as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------------- ------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Due in One Year or Less $ 3,945,532 $ 3,981,870 $ 1,274,442 $ 1,296,678
Due After One Year Through
Five Years 64,866,250 62,738,815 7,930,000 7,650,845
Due After Five Years Through
Ten Years 30,899,877 29,190,183 10,197,760 10,105,089
Due After Ten Years 2,826,364 2,793,901 42,201,139 40,059,318
--------------- -------------- ------------- -----------
102,538,023 98,704,769 61,603,341 59,111,930
Mortgage-Backed Securities 39,821,707 37,656,428 8,122,239 7,947,766
Equity Securities 0 0 460,000 460,000
--------------- -------------- ------------- -----------
TOTAL $ 142,359,730 $ 136,361,197 $ 70,185,580 $67,519,696
=============== ============== ============= ===========
</TABLE>
F-50
<PAGE> 180
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 2 - SECURITIES (CONCLUDED)
Proceeds from sales of investment securities classified as
available-for-sale during 1994 were $21,753,855, with gross gains
of $80,158 and gross losses of $275,998. Assets classified as
held-to-maturity totalling $1,317,200 were called by issuers
during 1994, resulting in gross gains of $27,966. There were no
sales or transfers of assets classified as held-to-maturity during
1994. During 1993, proceeds from sales of investment securities
were $37,944,615, with gross gains of $567,334 and gross losses of
$121,181. Proceeds from sales of investment securities during
1992 were $69,003,092, with gross gains of $1,231,209 and gross
losses of $113,981. In computing recognized gains and losses,
cost is determined using specific identification of securities.
At December 31, 1994, the investment portfolio included
$33,147,000 in structured note derivative financial instruments,
which is 16.05% of the total carrying value. The derivative
instruments are classified as available-for-sale and included as a
component of investment securities on the balance sheet.
Recognition and measurement policies for derivatives are the same
as all investment securities detailed in Note 1. The derivative
financial instruments consist of securities issued by government
agencies including the Federal Home Loan Mortgage Corporation,
Inc., the Federal Home Loan Bank, and the Student Loan Marketing
Association, Inc. Accordingly, the related risks associated with
these investments is considered to be an interest rate risk; that
is, how a change in interest rates influences the market value and
related liquidity of the securities. A decreasing trend in
interest rates would increase the market value of the derivative
financial instruments. The duration range of these instruments as
of December 31, 1994, is from 2.11 to 8.67 with an average
duration of 4.34. The Company maintains only one class of
derivative instruments, structured notes, which were originally
purchased for investment yield. Current objectives are to divest
of any and all structured notes as the market allows while
minimizing any loss on the sales and to decrease the average
duration of the derivative financial instruments by first
divesting of such instruments with longer durations.
As of December 31, 1994, investment securities with a carrying
value of $5,607,216 were pledged as collateral for public funds,
trust deposits and repurchase agreements.
UNREALIZED GAIN ON SECURITIES AVAILABLE-FOR-SALE
As discussed in Note 1, effective December 31, 1993, the Company
adopted the investment categorization and carrying value rules as
required by Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 115 (FASB No. 115), Accounting
for Certain Investments in Debt and Equity Securities. Under this
statement, the unrealized gain or loss on investment securities
available-for-sale, net of the applicable deferred income taxes,
is shown as a separate component of stockholders' equity in the
balance sheet. The following is a summary of the effects of the
statement on stockholders' equity as of December 31:
<TABLE>
<CAPTION>
1994 1993
------------ ----------
<S> <C> <C>
Gross Unrealized Gains (Losses) on Investment
Securities Available-For-Sale $ (5,998,533) $ 5,619,328
Deferred Income Tax Asset (Liability) on
Unrealized Gain 2,178,067 (2,032,960)
------------ -----------
NET (DECREASE) INCREASE IN STOCKHOLDERS' EQUITY $ (3,820,466) $ 3,586,368
============ ===========
</TABLE>
The following tabulation presents the net change in unrealized
gain or loss on available-for-sale securities that is shown as a
separate component of stockholders' equity.
<TABLE>
<CAPTION>
1994 1993
------------ ----------
<S> <C> <C>
(Decrease) Increase in Unrealized Gain or Loss $(11,617,861) $ 5,619,328
Decrease (Increase) in Related Deferred Income
Taxes 4,211,027 (2,032,960)
------------ -----------
NET (DECREASE) INCREASE IN STOCKHOLDERS' EQUITY $ (7,406,834) $ 3,586,368
============ ===========
</TABLE>
F-51
<PAGE> 181
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Major categories of loans included in the loan portfolio are:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1994 1993
---------------- ----------------
<S> <C> <C>
Commercial, Financial and Agricultural $ 13,457,158 $ 13,152,667
Real Estate 166,039,204 146,152,476
Installment Loans 20,479,844 20,561,354
---------------- ----------------
Loans Receivable (Gross) 199,976,206 179,866,497
(Unearned Income) (1,024,096) (1,266,269)
---------------- ----------------
LOANS RECEIVABLE (NET OF UNEARNED INCOME) $ 198,952,110 $ 178,600,228
================ ================
</TABLE>
The maturity ranges of the loan portfolio and the amount of loans
with predetermined interest rates and floating rates in each
maturity range, as of December 31, 1994, are summarized as
follows:
<TABLE>
<CAPTION>
CONTRACTUAL MATURITY DISTRIBUTION
-----------------------------------------------------
WITHIN ONE - AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Commercial, Financial and Agricultural $ 10,392,618 $ 3,028,324 $ 25,990 $ 13,446,932
Real Estate 130,589,388 23,378,472 11,318,952 165,286,812
Installment Loans 7,786,051 11,545,294 887,021 20,218,366
------------ ------------ ----------- ------------
TOTAL LOANS (NET OF UNEARNED INCOME) $148,768,057 $ 37,952,090 $12,231,963 $198,952,110
============ ============ =========== ============
Loans With Predetermined Rate 8,607,520 37,877,552 12,231,963 58,717,035
Loans With a Floating Rate 140,160,537 74,538 0 140,235,075
------------ ------------ ----------- ------------
TOTAL LOANS (NET OF UNEARNED INCOME) $148,768,057 $ 37,952,090 $12,231,963 $198,952,110
============ ============ =========== ============
</TABLE>
The Bank has granted loans to its executive officers, directors
and principal equity holders and their associates. The aggregate
dollar amount of these loans was approximately $2,967,543 and
$4,285,680 at December 31, 1994 and 1993, respectively. During
1994, approximately $2,782,847 in new loans were made while
repayment approximated $4,100,985.
Loans on which the accrual of interest has been discontinued or
reduced at December 31, 1994 and 1993 approximated $502,574 and
$812,339, respectively. Interest income realized on these loans
was $579 and $45,705 in 1994 and 1993, respectively. If interest
on those loans had been accrued, it would not have a material
effect on the accompanying consolidated financial statements. At
December 31, 1994, the Bank had loans subject to floors and caps
totalling $76,828,512. The floors and caps on these loans range
from 1.50% to 15.25% and consist primarily of adjustable rate
mortgages.
At December 31, 1994, there were no commitments to lend additional
funds to borrowers whose loans are classified as nonaccrual.
F-52
<PAGE> 182
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONCLUDED)
Changes in the allowance for loan losses for 1994, 1993 and 1992
are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $2,489,991 $1,686,880 $1,670,890
---------- ---------- ----------
Provisions Charged to Expense 600,000 1,075,000 1,400,000
---------- ---------- ----------
Recoveries of Loans Previously Charged-Off:
Commercial, Financial and Agricultural 59,167 33,092 250
Real Estate 47,904 21,674 14,464
Installment Loans 7,544 53,977 33,583
---------- ---------- ----------
Total Recoveries 114,615 108,743 48,297
---------- ---------- ----------
Loans Charged-Off:
Commercial, Financial and Agricultural 55,389 0 544,630
Real Estate 77,479 320,967 790,282
Installment Loans 77,483 59,665 97,395
---------- ---------- ----------
Total Loans Charged-Off (210,351) (380,632) (1,432,307)
---------- ---------- ----------
BALANCE, END OF YEAR $2,994,255 $2,489,991 $1,686,880
========== ========== ==========
RATIO OF NET CHARGE-OFFS TO AVERAGE LOANS
OUTSTANDING .05% .16% .89%
========== ========== ==========
RATIO OF ALLOWANCE FOR LOAN LOSSES AS A
PERCENTAGE OF YEAR END LOANS 1.51% 1.39% 1.05%
========== ========== ==========
</TABLE>
As of December 31, 1994 and 1993, the allowance for loan losses
was allocated as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ -------------------------
PERCENT BY PERCENT BY
AMOUNT CATEGORY AMOUNT CATEGORY
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial $ 682,990 23% $ 516,594 21%
Real Estate 2,200,895 73% 1,836,911 74%
Installment 110,370 4% 136,486 5%
TOTAL ALLOWANCE FOR ---------- --- ---------- ---
LOAN LOSSES $2,994,255 100% $2,489,991 100%
========== === ========== ===
</TABLE>
F-53
<PAGE> 183
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 4 - PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Land $ 839,958 $ 839,958
Buildings 6,669,938 6,653,938
Furniture, Fixtures and Equipment 4,898,628 4,528,762
----------- -----------
12,408,524 12,022,658
(Accumulated Depreciation) (5,601,689) (5,352,797)
----------- -----------
TOTAL PREMISES AND EQUIPMENT $ 6,806,835 $ 6,669,861
=========== ===========
</TABLE>
NOTE 5 - DEPOSITS
A summary of interest-bearing deposits is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Demand $ 54,121,540 $ 52,363,603
Savings 111,648,230 116,841,329
Time 188,557,736 164,320,275
------------ ------------
TOTAL INTEREST-BEARING DEPOSITS $354,327,506 $333,525,207
============ ============
</TABLE>
Included in interest-bearing deposits are certificates of deposit
in amounts of $100,000 or more. These certificates and their
remaining maturities at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Three Months or Less $ 7,609,057 $ 6,993,065
Three Through Six Months 2,953,564 3,461,012
Six Through Twelve Months 5,066,999 4,285,754
Over Twelve Months 11,584,021 9,423,250
----------- -----------
TOTAL $27,213,641 $24,163,081
=========== ===========
</TABLE>
A summary of interest on deposits is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- -----------
<S> <C> <C> <C>
Interest-Bearing Demand Deposits $ 2,709,256 $ 2,878,854 $ 3,488,906
Savings 1,309,118 1,235,463 1,367,973
Time Deposits of $100,000 or More 1,249,600 1,064,086 1,141,043
Other Time Deposits 7,031,965 6,516,396 7,368,253
-------------- -------------- -----------
TOTAL $ 12,299,939 $ 11,694,799 $13,366,175
============== ============== ===========
</TABLE>
F-54
<PAGE> 184
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 6 - INCOME TAXES
As discussed in Note 1, effective January 1, 1993, the Company
adopted the asset and liability method of accounting for income
taxes as required by Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109 (FASB No.
109), Accounting for Income Taxes. The Company previously used
the deferred method to account for income taxes. The Company
accounted for this change as the cumulative effect of an
accounting changes in the 1993 financial statements. The
cumulative effect of $255,072 is recognized in the 1993
consolidated statement of income.
The total provision (benefit) for income taxes in the consolidated
statements of income is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CURRENT INCOME TAX EXPENSE
U.S. Federal $1,924,114 $1,841,861 $1,541,778
State of Florida 284,551 321,463 259,014
---------- ---------- ----------
TOTAL CURRENT INCOME TAX EXPENSE 2,208,665 2,163,324 1,800,792
---------- ---------- ----------
DEFERRED INCOME TAX (BENEFIT)
U.S. Federal (107,909) (274,392) (20,424)
State of Florida (18,472) (46,970) (3,585)
----------- ---------- ----------
TOTAL DEFERRED INCOME TAX (BENEFIT) (126,381) (321,362) (24,009)
----------- ---------- ----------
TOTAL INCOME TAX EXPENSE $2,082,284 $1,841,962 $1,776,783
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
------------------- ------------------------- ------------------------
AMOUNT % AMOUNT % AMOUNT %
---------- ----- --------------- ---- --------------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed "Expected" Income
Tax Expense $2,749,785 34.0 $ 2,487,095 34.0 $ 2,281,316 34.0
Interest Income Exempt From
Federal Income Tax (851,507) (10.5) (717,410) (9.8) (667,215) (9.9)
State Income Taxes, Net of
Federal Income Tax Benefits 175,612 2.1 181,165 2.5 168,583 2.5
Other 8,394 .1 (108,888) (1.5) (5,901) (0.1)
---------- ---- --------------- ---- --------------- ----
TOTAL $2,082,284 25.7 $ 1,841,962 25.2 $ 1,776,783 26.5
========== ==== =============== ==== =============== ====
</TABLE>
Deferred tax liabilities (assets) are comprised of the following
at December 31:
<TABLE>
<CAPTION>
1994 1993
------- ----------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Depreciation $91,466 $ 99,175
Basis Difference on Investment Securities
Available-For-Sale 0 2,032,960
------- ----------
GROSS DEFERRED TAX LIABILITIES 91,466 2,132,135
======= ==========
</TABLE>
F-55
<PAGE> 185
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 6 - INCOME TAXES (CONCLUDED)
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
DEFERRED TAX (ASSETS)
Basis Difference on Investment Securities
Available-For-Sale $ 2,178,067 $ 0
Allowance For Loan Losses 878,493 685,734
Allowance For Losses on Other Real Estate Owned 61,633 100,721
Earnings of Real Estate Mortgage Investment
Conduit (REMIC) 46,108 85,986
Deferred Expenses Payable 65,835 76,424
Deferred Loan Income 290,612 275,144
----------- ----------
GROSS DEFERRED TAX (ASSETS) (3,520,748) (1,224,009)
----------- ----------
NET DEFERRED TAX LIABILITIES (ASSETS) $(3,429,282) $ 908,126
=========== ==========
</TABLE>
The sources of timing differences and the related income tax
effect of each of the years ended December 31, 1994, 1993 and 1992
were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- --------
<S> <C> <C> <C>
Provision For Loan and Other Real Estate Owned
Losses For Income Tax Purposes Greater (Less)
Than For Financial Statement Purposes $ (153,672) $ (316,785) $(48,956)
Adjustment of Prior Year Deferred Income Tax
Estimate 0 0 14,718
Interest Income Earned on Real Estate Mortgage
Investment Conduit For Income Tax Purposes
(Less) Greater Than For Financial Statement
Purposes 39,800 39,461 (44,956)
Depreciation Deducted For Tax Purposes (Less)
Greater Than That Recognized as Expense For
Financial Statement Purposes (7,709) 1,931 17,341
Loan Fee Income Realized For Income Tax Purposes
Greater (Less) Than For Financial Statement
Purposes (15,468) (35,674) 47,592
Other 10,668 (10,295) (9,748)
----------- ----------- --------
TOTAL $ (126,381) $ (321,362) $(24,009)
=========== =========== ========
</TABLE>
As a result from gains and losses on sales of securities, income
tax expense increased (decreased) by the following amounts:
$(63,171) in 1994; $167,624 in 1993; and $420,413 in 1992.
F-56
<PAGE> 186
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 7 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
CASH AND SHORT-TERM INVESTMENTS
For those short-term instruments, the carrying amount is
considered a reasonable estimate of fair value.
INVESTMENT SECURITIES
For marketable equity securities held for investment purposes,
fair values are based on quoted market prices or dealer quotes.
For other securities held as investments, fair value equals quoted
market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
LOANS RECEIVABLE
The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same
remaining maturities.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for
deposits of similar remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For those short-term instruments, the carrying amount is
considered a reasonable estimate of fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
Substantially all of the Bank's commitments to extend credit and
standby letters of credit are at variable rates and are subjected
to the same credit criteria as for recognized loans receivable.
The variable rates ascribed to these commitments to extend credit
and standby letters of credit approximate market rates for such
instruments. Accordingly, the carrying amount is considered a
reasonable estimate of fair value.
F-57
<PAGE> 187
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 7 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Bank's financial instruments are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1994 1993
------------------------------- -------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and Short-Term
Investments $ 14,321,737 $ 14,321,737 $ 15,266,482 $ 15,266,482
Investment Securities $ 206,546,777 $ 203,880,893 $ 206,527,107 $209,712,181
Loans Receivable, Net $ 195,957,855 $ 195,063,705 $ 176,110,237 $176,593,556
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1994 1993
---------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCIAL LIABILITIES
Deposits $ 388,867,122 $ 390,534,696 $ 364,274,657 $366,221,927
Federal Funds Purchased
and Securities Sold
Under Agreements to
Repurchase $ 5,633,216 $ 5,633,216 $ 5,491,063 $ 5,491,063
UNRECOGNIZED FINANCIAL
INSTRUMENTS
Commitments Under
Unfunded Portion
Lines of Credit $ 28,728,029 $ 28,728,029 $ 23,701,487 $ 23,701,487
Unfunded Loan
Commitments $ 4,647,250 $ 4,647,250 $ 3,208,000 $ 3,208,000
Standby Letters of
Credit $ 630,602 $ 630,602 $ 1,847,086 $ 1,847,086
</TABLE>
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers and to reduce its own
exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount
recognized in the statement of financial position. The contract or
notional amounts of those instruments reflect the extent of
involvement the Bank has in particular an classes of financial
instruments.
F-58
<PAGE> 188
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 7 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONCLUDED)
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit written is represented
by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. For
interest rate caps and floors, the contract or notional amounts do
not represent exposure to credit loss.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent
future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank upon extension of credit
is based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable,
inventory, property, plant, and equipment, and income-producing
commercial properties.
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and
similar transactions. Most guarantees extend for only one year and
expire in decreasing amounts through 1997. The credit risk involved
in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Bank holds
marketable securities, certificates of deposit, securities sold
under agreements to repurchase and real estate, as collateral
supporting those commitments for which collateral is deemed
necessary.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank has various commitments
and contingent liabilities outstanding, such as commitments to
extend credit and standby letters of credit which are not
reflected in the consolidated financial statements. At December
31, 1994, the Bank had commitments to customers of approximately
$630,602 for standby letters of credit, and $28,728,029 for
approved lines of credit. Unfunded loan commitments at December
31, 1994 were $4,647,250. No losses are anticipated as a result
of these transactions.
The Bank is involved in legal proceedings primarily concerning the
recovery of loans previously charged-off or adequately provided
for in the allowance for loan losses. Management, after a review
of all litigation with counsel, believes that the resolution of
these matters will not have a material effect on the accompanying
consolidated financial statements.
F-59
<PAGE> 189
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONCLUDED)
Minimum commitments for rental expenditures under all
noncancellable operating leases are presented for future years in
the following table:
<TABLE>
<S> <C>
1995 $ 35,250
1996 36,000
1997 36,000
1998 36,000
1999 36,000
Thereafter 36,000
------------
TOTAL MINIMUM LEASE PAYMENTS $ 215,250
============
</TABLE>
Rental expense for all operating leases was $68,896, $68,720 and
$68,719 in 1994, 1993 and 1992, respectively.
NOTE 9 - STOCKHOLDERS' EQUITY
AVERAGE SHARES OUTSTANDING
The weighted-average number of shares outstanding during 1994,
1993 and 1992 were 4,047,647, 4,050,051, and 4,052,827,
respectively.
REGULATORY MATTERS
There are no restrictions on the ability of the Company to pay
dividends from its retained earnings; however, banking regulations
limit the amount of dividends national banks may declare without
receiving prior approval from the Comptroller of the Currency. At
December 31, 1994, approximately $12,714,897 was available for
payment of dividends by the Bank without such approval.
The Board of Governors of the Federal Reserve System has specified
guidelines for purposes of evaluating a bank's capital adequacy.
Currently, banks must maintain a minimum primary capital ratio of
capital to risk assets of 8.0%. Primary capital includes the
Company's stockholders' equity and the allowance for loan losses.
At December 31, 1994, the primary capital ratio of capital to risk
assets was in excess of 10%.
STOCK OPTION PLAN
In 1994, the Company adopted a stock option plan for granting
nonqualified stock options to specified officers. The
nonqualified stock options are granted to the officers provided
the Bank meets certain target performance and asset quality
criteria. The stock options, after a two-year vesting requirement,
are exercisable at a price equal to the book value per share, net
of FASB No. 115. The Board normally makes its decision on whether
or not to grant the options for a given year in February of the
following year, allowing time to review complete financial data
and achievement of certain performance criteria. If approved, the
options are granted effective the first business
F-60
<PAGE> 190
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 9 - STOCKHOLDERS' EQUITY (CONCLUDED)
Stock Option Plan (Concluded)
day following the end of the year. The option price is the year-end
book value, net of FASB No. 115 for the year just completed. Should
a grantee retire, the options granted to him or her are exercisable
within one year of retirement. In 1995, options for 11,250 shares
were granted effective January 2, 1995 based on the Company's
performance for the year ended December 31, 1994. The Company
follows APB 25, Accounting for Stock Issued to Employeees in
recognizing stock options.
NOTE 10 - OTHER EXPENSES
A summary of other expenses is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Stationery and Supplies $ 355,800 $ 272,633 $ 293,598
Advertising 285,212 275,235 219,469
Insurance, Including Regulatory Assessments 891,428 836,066 786,109
Postage 195,433 169,937 162,894
Taxes (Other Than Payroll, Real Estate and
Income Taxes) 181,760 206,080 205,733
Directors' Fees 265,288 266,167 233,400
Trust Department Expense 136,116 118,255 103,596
Miscellaneous 814,580 785,321 935,669
---------- ---------- ----------
TOTAL OTHER EXPENSES $3,125,617 $2,929,694 $2,940,468
========== ========== ==========
</TABLE>
NOTE 11 - PENSION AND PROFIT SHARING PLANS
The Bank maintains pension and profit sharing plans covering
eligible officers and employees. Profit sharing contributions
($385,645 in 1994, $261,991 in 1993 and $256,688 in 1992) are
determined annually at the discretion of the Board of Directors of
the Bank. Effective January 1, 1988, the Bank adopted Statement
of Financial Accounting Standards No. 87, Employers' Accounting
For Pensions. Under this statement, pension expense must be
accounted for using the projected unit credit method. Net
periodic pension expense for the years ended December 31 includes
the following components:
F-61
<PAGE> 191
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 11 - PENSION AND PROFIT SHARING PLANS (CONTINUED)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Service Cost $ 255,148 $ 224,639 $ 153,504
Interest Cost 175,201 149,779 155,980
Return on Plan Assets 65,955 (111,429) (148,157)
Amortization of Net Transition Asset (7,283) (7,283) (7,283)
Amortization of Prior Service Cost 18,040 19,989 19,989
Amortization of Net Loss (Gain) From
Earlier Periods 69,363 60,512 867
Asset Gain (Loss) Deferred (210,725) (11,112) (28,749)
--------- --------- ---------
TOTAL PENSION EXPENSE $ 365,699 $ 325,095 $ 146,151
========= ========= =========
</TABLE>
The initial unrecognized asset at January 1, 1988 was $316,896,
which is the excess of the fair value of assets over the projected
benefit obligation on that date. The initial unrecognized
transition asset, as adjusted for any subsequent lump-sum
settlements, is being amortized over thirty-one years.
The Bank's funding policy is to make an annual contribution that
will not be less than the minimum required contribution nor
greater than the maximum federal income tax deductible limit. The
Bank contributed $362,000 for 1994; $345,588 for 1993; and
$326,913 for 1992. The funded status of the plan at December 31,
1994 and 1993 as determined by consulting actuaries, was as
follows:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS
Vested $ 1,934,126 $ 1,770,343
Nonvested 259,354 182,595
-------------- --------------
TOTAL $ 2,193,480 $ 1,952,938
============== ==============
ACCRUED PENSION LIABILITY
Projected Benefit Obligation $ (3,199,274) $ (2,854,146)
Fair Value of Plan Assets 2,548,469 2,677,964
-------------- --------------
PROJECTED BENEFIT OBLIGATION (IN EXCESS OF
or) LESS THAN PLAN ASSETS (650,805) (176,182)
UNRECOGNIZED NET TRANSITION ASSET (174,799) (182,082)
UNRECOGNIZED NET LOSSES (GAINS) 1,151,651 641,840
UNRECOGNIZED PRIOR SERVICE COST 195,682 241,852
-------------- --------------
PREPAID PENSION COST $ 521,729 $ 525,428
============== ==============
</TABLE>
The expected long-term rate of return on plan assets was 6% in
1994 and 1993 and 9% for the preceding years. The discount rate
and rate of increase in future compensation levels used in
determining the actuarial present value of benefit obligations is
presented below for each year.
As of December 31, 1994, the assets of the defined benefit plan
were invested as follows: 18% in cash and cash equivalents; 25% in
U.S. Treasury and government agency debt securities; 13% in
taxable obligations of state and political subdivisions; 20% in
corporate debt securities; and 24% in equity securities. Five
percent of the value of the defined benefit plan's assets is
invested in the common stock of the Company.
F-62
<PAGE> 192
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 11 - PENSION AND PROFIT SHARING PLANS (CONCLUDED)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount Rate 6.00% 6.00% 8.00%
Rate of Compensation Increase 5.00% 5.00% 5.00%
</TABLE>
NOTE 12 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers and to reduce its own
exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby
letters of credit as shown in Note 7 of the financial statements.
Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amounts recognized in the
consolidated balance sheets. The contract or notional amounts of
those instruments reflect the extent of involvement the Bank has
in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit written is represented
by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments. For interest rate caps and floors, the contract or
notional amounts do not represent exposure to credit loss.
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of
the Company which, in the opinion of management, reflects
adjustments (comprising only normal recurring accruals) necessary
for fair presentation:
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED
-------------------------------------------------------------
1994 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------------------- ----------- ------------ ------- --------
<S> <C> <C> <C> <C>
Interest Income $7,816 $7,490 $7,403 $6,885
Interest Expense 3,418 3,215 2,959 2,863
Net Interest Income 4,398 4,275 4,444 4,022
Provision For Losses
on Loans 77 201 172 150
Security Gains (Losses) (44) 0 (178) 54
Net Income 1,544 1,550 1,539 1,373
Earnings Per Share .38 .38 .38 .34
</TABLE>
F-63
<PAGE> 193
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED) (CONCLUDED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED
-------------------------------------------------------------
1993 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------------------- ----------- ------------ ------- --------
<S> <C> <C> <C> <C>
Interest Income $6,952 $6,905 $6,939 $6,703
Interest Expense 2,881 2,949 2,962 2,994
Net Interest Income 4,071 3,956 3,977 3,709
Provision For Losses
on Loans 400 225 225 225
Security Gains (Losses) 55 111 59 220
Net Income 1,293 1,457 1,405 1,573
Earnings Per Share $ .32 $ .36 $ .35 $ .39
</TABLE>
NOTE 14 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of Citi-Bancshares, Inc. (Parent
Company Only) are presented on the following pages.
F-64
<PAGE> 194
CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
CITI-BANCSHARES, INC. (PARENT COMPANY ONLY) - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
ASSETS
1994 1993
----------- ----------
<S> <C> <C>
Cash $ 1,552,951 $ 1,390,876
Investment in Wholly-Owned Subsidiary,
at Equity in Underlying Assets 33,832,787 36,693,226
Other Assets 50,921 24,814
----------- -----------
TOTAL ASSETS 35,436,659 38,108,916
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Dividends Payable 1,416,675 1,254,769
Other 43,728 59,696
----------- -----------
TOTAL LIABILITIES 1,460,403 1,314,465
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock 41,846 41,846
Capital Surplus 11,207,783 11,207,783
Retained Earnings 27,339,017 22,750,378
(Treasury Stock) (791,924) (791,924)
Unrealized (Losses) Gains on Certain Securities (3,820,466) 3,586,368
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 33,976,256 36,794,451
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $35,436,659 $38,108,916
=========== ===========
</TABLE>
F-65
<PAGE> 195
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
CITI-BANCSHARES, INC. (PARENT COMPANY ONLY) - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
INCOME
Cash Dividends From Subsidiary $1,500,000 $1,400,000 $1,155,000
Interest 21,350 16,798 14,690
---------- ---------- ----------
TOTAL INCOME 1,521,350 1,416,798 1,169,690
---------- ---------- ----------
EXPENSES
Interest 2,856 1,910 1,774
Other Expense 82,866 69,650 55,987
---------- ---------- ----------
TOTAL EXPENSES 85,722 71,560 57,761
---------- ---------- ----------
INCOME BEFORE INCOME TAX BENEFIT AND
EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARY 1,435,628 1,345,238 1,111,929
INCOME TAX BENEFIT RESULTING FROM
FILING CONSOLIDATED INCOME TAX
RETURNS 23,294 19,814 15,582
EQUITY IN UNDISTRIBUTED INCOME OF
SUBSIDIARY 4,546,396 4,363,043 3,805,458
---------- ---------- ----------
NET INCOME $6,005,318 $5,728,095 $4,932,969
========== ========== ==========
</TABLE>
F-66
<PAGE> 196
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
CITI-BANCSHARES, INC. (PARENT COMPANY ONLY) - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $6,005,318 $5,728,095 $4,932,969
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Deferred Compensation (15,968) 10,926 6,080
Income From Subsidiary (4,546,396) (4,363,043) (3,805,458)
Tax Benefit (23,294) (19,814) (15,582)
Other (2,816) 87,005 (3)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,416,844 1,443,169 1,118,006
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Paid (1,254,769) (1,134,792) (772,022)
Purchase of Treasury Stock 0 (49,248) 0
---------- ---------- ----------
NET CASH (USED IN) FINANCING ACTIVITIES (1,254,769) (1,184,040) (772,022)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH 162,075 259,129 345,984
CASH, BEGINNING OF YEAR 1,390,876 1,131,747 785,763
---------- ---------- ----------
CASH, END OF YEAR $1,552,951 $1,390,876 $1,131,747
========== ========== ==========
</TABLE>
F-67
<PAGE> 197
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
CITIZENS FIRST BANCSHARES, INC.
AND
CITI-BANCSHARES, INC.
DATED AS OF OCTOBER 19, 1995
<PAGE> 198
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 - TRANSACTIONS AND TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Bank Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 - TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3 - MANNER OF CONVERTING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Anti-Dilution Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Shares Held by CFB or CBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.5 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 4 - EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1 Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2 Rights of Former CFB Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.1 Organization, Standing, and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.2 Authority; No Breach By Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.4 CFB Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.6 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.9 Allowance for Possible Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.10 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.12 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.13 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.14 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.15 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.16 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.17 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.18 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.19 Accounting, Tax and Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.20 State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.21 Charter Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.22 Directors' Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.23 Shareholders' Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.24 Federal Home Loan Bank of Atlanta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.25 Real Estate/Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
A-i
<PAGE> 199
<TABLE>
<S> <C>
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF CBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1 Organization, Standing, and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.2 Authority; No Breach By Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.5 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.7 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.8 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.9 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.10 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.11 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.12 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.13 Accounting, Tax and Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.14 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.15 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.16 Allowance for Possible Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.17 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 7 - CONDUCT OF BUSINESS PENDING CONSUMMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1 Affirmative Covenants of CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 Negative Covenants of CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.3 Covenants of CBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.4 Adverse Changes in Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.5 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 8 - ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Registration Statement; Proxy Statement; Shareholder Approval . . . . . . . . . . . . . . . . . 20
8.2 Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.3 Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.4 Filings with State Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.5 Agreement as to Efforts to Consummate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.6 Investigation and Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.7 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.8 Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.9 Accounting and Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.10 State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.11 Charter Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.12 Agreements of Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.13 Employee Benefits and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.14 Certain Policies of CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.15 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.16 Director and Officer Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 9 - CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE . . . . . . . . . . . . . . . . . . . . . . 23
9.1 Conditions to Obligations of Each Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.2 Conditions to Obligations of CBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.3 Conditions to Obligations of CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 10 - TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.3 Non-Survival of Representations and Covenants . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 11 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
A-ii
<PAGE> 200
<TABLE>
<S> <C> <C>
11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.3 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.5 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.6 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.12 Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.13 Enforcement of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
A-iii
<PAGE> 201
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of October 19, 1995, by and between CITIZENS FIRST BANCSHARES,
INC. ("CFB"), a Florida corporation having its principal office located in
Ocala, Florida; and CITI-BANCSHARES, INC. ("CBI"), a Florida corporation having
its principal office located in Leesburg, Florida.
PREAMBLE
The Boards of Directors of CFB and CBI are of the opinion that the
transactions described herein are in the best interests of the parties and
their respective shareholders. This Agreement provides for the acquisition of
CFB by CBI pursuant to the Merger (as defined below) of CFB with and into CBI.
At the effective time of such Merger, the outstanding shares of the capital
stock of CFB shall be converted into the right to receive shares of the common
stock of CBI (except as provided herein). As a result, shareholders of CFB
shall become shareholders of CBI and CBI shall continue to conduct the business
and operations of CFB. The transactions described in this Agreement are
subject to the approvals of the shareholders of CFB, the Board of Governors of
the Federal Reserve System, the Office of the Comptroller of the Currency, the
Florida State Banking Department and other necessary authorities, and the
satisfaction of certain other conditions described in this Agreement. It is
the intention of the parties to this Agreement that the Merger for federal
income tax purposes shall qualify as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code, and for accounting purposes shall
qualify for treatment as a pooling of interests.
Following the Closing of the Merger, Citizens First Bank of Ocala ("CFBO"),
a wholly-owned Florida state bank subsidiary of CFB, will be merged (the "Bank
Merger") with Citizens National Bank of Leesburg ("CNBL"), a wholly-owned
subsidiary of CBI.
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time, CFB shall be merged with and into CBI in accordance with
the provisions of Section 607.1101 of the FBCA and with the effect provided in
Section 607.1106 of the FBCA (the "Merger"). CBI shall be the Surviving
Corporation resulting from the Merger and shall continue to be governed by the
Laws of the State of Florida. The Merger shall be consummated pursuant to the
terms of this Agreement, which has been approved and adopted by the respective
Boards of Directors of CFB and CBI.
1.2 TIME AND PLACE OF CLOSING. The Closing will take place at 9:00
A.M. on the date that the Effective Time occurs (or the immediately preceding
day if the Effective Time is earlier than 9:00 A.M.), or at such other time as
the Parties, acting through their chief executive officers or chief financial
officers, may mutually agree. The place of Closing shall be at the offices of
Alston & Bird, Atlanta, Georgia, or such other place as may be mutually agreed
upon by the Parties.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated by
this Agreement shall become effective on the date and at the time the Articles
of Merger reflecting the Merger shall become effective with the Secretary of
State of the State of Florida (the "Effective Time"). Subject to the terms and
conditions hereof, unless
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otherwise mutually agreed upon in writing by the chief executive officers or
chief financial officers of each Party, the Parties shall use their reasonable
efforts to cause the Effective Time to occur on (a) the last business day of
the month in which occurs the last to occur of (i) the effective date
(including expiration of any applicable waiting period) of the last required
Consent of any Regulatory Authority having authority over and approving or
exempting the Merger, and (ii) the date on which the shareholders of CFB
approve this Agreement to the extent such approval is required by applicable
Law or (b) such later date within 30 days thereof as may be specified by CBI.
1.4 BANK MERGER. Following the Merger, CFBO shall (at CBI's
discretion) be merged with CNBL (the "Bank Merger") under the Charter and
Articles of Association of CNBL in accordance with the provisions of and with
the effect provided in Title 12, United States Code, Section 215a on terms and
subject to the provisions of the Bank Plan of Merger ("Bank Plan"), attached
hereto as Exhibit 1. The Bank Plan shall be executed and the transactions
contemplated therein shall be consummated at such date and time as CBI directs
(the "Bank Merger Effective Time"). CFB shall vote all the shares of CFBO
capital stock in favor of the Bank Plan and the Bank Merger provided therein.
ARTICLE 2
TERMS OF MERGER
2.1 CHARTER. The Articles of Incorporation of CBI in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation until otherwise amended or repealed.
2.2 BYLAWS. The Bylaws of CBI in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until otherwise
amended or repealed.
2.3 DIRECTORS AND OFFICERS. The directors of CBI in office
immediately prior to the Effective Time, together with such additional persons
as may thereafter be elected, shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the Bylaws of
the Surviving Corporation. The officers of CBI in office immediately prior to
the Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the officers of the Surviving Corporation from and
after the Effective Time in accordance with the Bylaws of the Surviving
Corporation.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any
action on the part of CBI, CFB, or the shareholders of any of the
foregoing, the shares of the constituent corporations shall be converted as
follows:
(a) Each share of CBI Capital Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(b) Each share of CFB Common Stock (excluding shares held by any
CFB Company or any CBI Company, in each case other than in a
fiduciary capacity or as a result of debts previously contracted, and
excluding shares held by shareholders who perfect their statutory
dissenters' rights as provided in Section 3.4 of this Agreement)
issued and outstanding at the Effective Time shall cease to be
outstanding and shall be converted into and exchanged solely for the
right to receive that number of shares of CBI Common Stock equal to
425,000 divided by the number of shares of CFB Common Stock issued and
outstanding at the Effective Time (the "Exchange Ratio").
3.2 Anti-Dilution Provisions. In the event CFB or CBI changes the
number of shares of CFB Common Stock or CBI Common Stock, respectively, issued
and outstanding prior to the Effective Time as a result of a stock
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split, stock dividend, or similar recapitalization with respect to such
stock and the record date therefor (in the case of a stock dividend) or the
effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be
prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted.
3.3 Shares Held by CFB or CBI. Each of the shares of CFB Common
Stock held by any CFB Company or by any CBI Company, in each case other
than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.4 Dissenting Shareholders. Any holder of shares of CFB Common
Stock who perfects his dissenters' rights in accordance with and as
contemplated by Section 607.1301 et seq. of the FBCA shall be entitled to
receive the value of such shares in cash as determined pursuant to such
provision of Law; provided, that no such payment shall be made to any
dissenting shareholder unless and until such dissenting shareholder has
complied with the applicable provisions of the FBCA and surrendered to CFB
the certificate or certificates representing the shares for which payment is
being made. In the event that after the Effective Time a dissenting
shareholder of CFB fails to perfect, or effectively withdraws or loses, his
right to appraisal and of payment for his shares, CBI shall issue and
deliver the consideration to which such holder of shares of CFB Common Stock
is entitled under this Article 3 (without interest) upon surrender by such
holder of the certificate or certificates representing shares of CFB Common
Stock held by him.
3.5 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of CFB Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of
a share of CBI Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of CBI Common
Stock multiplied by the market value of one share of CBI Common Stock at
the Effective Time. The market value of one share of CBI Common Stock at the
Effective Time shall be the last sale price of such common stock on the
Nasdaq National Market (as reported by The Wall Street Journal or, if
not reported thereby, any other authoritative source) on the last trading
day preceding the Effective Time. No such holder will be entitled to
dividends, voting rights, or any other rights as a shareholder in respect of
any fractional shares.
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, CBI
and CFB shall cause the exchange agent selected by CBI (the "Exchange
Agent") to mail to the former shareholders of CFB appropriate
transmittal materials (which shall specify that delivery shall be effected,
and risk of loss and title to the certificates theretofore representing shares
of CFB Common Stock shall pass, only upon proper delivery of such
certificates to the Exchange Agent). After the Effective Time, each
holder of shares of CFB Common Stock (other than shares to be canceled
pursuant to Section 3.3 of this Agreement or as to which statutory
dissenters' rights have been perfected as provided in Section 3.4 of this
Agreement) issued and outstanding at the Effective Time shall surrender the
certificate or certificates representing such shares to the Exchange Agent
and shall promptly upon surrender thereof receive in exchange therefor the
consideration provided in Section 3.1 of this Agreement, together with
all undelivered dividends or distributions in respect of such shares
(without interest thereon) pursuant to Section 4.2 of this Agreement. To
the extent required by Section 3.5 of this Agreement, each holder of shares
of CFB Common Stock issued and outstanding at the Effective Time also shall
receive, upon surrender of the certificate or certificates representing such
shares, cash in lieu of any fractional share of CBI Common Stock to which
such holder may be otherwise entitled (without interest). CBI shall not be
obligated to deliver the consideration to which any former holder of CFB
Common Stock is entitled as a result of the Merger until such holder
surrenders his certificate or certificates representing the shares of CFB
Common Stock for exchange as provided in this Section 4.1. The certificate
or certificates of CFB Common Stock so surrendered shall be duly endorsed
and/or accompanied by such transmittal materials as the Exchange Agent may
require. Any other provision of this
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Agreement notwithstanding, neither CBI, the Surviving Corporation nor the
Exchange Agent shall be liable to a holder of CFB Common Stock for any
amounts paid or property delivered in good faith to a public official
pursuant to any applicable abandoned property Law.
4.2 Rights of Former CFB Shareholders. At the Effective Time, the
stock transfer books of CFB shall be closed as to holders of CFB Common Stock
immediately prior to the Effective Time, and no transfer of CFB Common Stock
by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1 of
this Agreement, each certificate theretofore representing shares of CFB
Common Stock (other than shares to be canceled pursuant to Sections 3.3
and 3.4 of this Agreement) shall from and after the Effective Time represent
for all purposes only the right to receive the consideration provided in
Sections 3.1 and 3.5 of this Agreement in exchange therefor, subject,
however, to the Surviving Corporation's obligation to pay any dividends or
make any other distributions with a record date prior to the Effective Time
which have been declared or made by CFB in respect of such shares of CFB
Common Stock in accordance with the terms of this Agreement and which remain
unpaid at the Effective Time. Whenever a dividend or other distribution is
declared by CBI on the CBI Common Stock, the record date for which is at or
after the Effective Time, the declaration shall include dividends or other
distributions on all shares issuable pursuant to this Agreement, but
after the Effective Time no dividend or other distribution payable to
the holders of record of CBI Common Stock as of any time subsequent to the
Effective Time shall be delivered to the holder of any certificate
representing shares of CFB Common Stock issued and outstanding at the
Effective Time until such holder surrenders such certificate for exchange as
provided in Section 4.1 of this Agreement. However, upon surrender of such
CFB Common Stock certificate, both the CBI Common Stock certificate (together
with all such undelivered dividends or other distributions, all without
interest) and any undelivered cash payments to be paid for fractional
share interests (without interest) shall be delivered and paid with respect
to each share represented by such certificate.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CFB
CFB hereby represents and warrants to CBI as follows:
5.1 Organization, Standing, and Power. CFB is a corporation duly
organized, validly existing, and in good standing under the Laws of the State
of Florida, and has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its Assets. CFB is
duly qualified or licensed to transact business as a foreign corporation in
good standing in the States of the United States and foreign jurisdictions
where the character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on CFB.
5.2 Authority; No Breach By Agreement.
(a) CFB has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Mergers, have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
CFB, subject to the approval of this Agreement by the holders of a majority of
the outstanding CFB Common Stock, which is the only shareholder vote required
for approval of this Agreement and consummation of the Merger by CFB. Subject
to such requisite shareholder approval, this Agreement represents a legal,
valid, and binding obligation of CFB, enforceable against CFB in accordance
with its terms (except in all cases as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
may be brought).
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(b) Neither the execution and delivery of this Agreement by CFB,
nor the consummation by CFB and of the transactions contemplated hereby, nor
compliance by CFB with any of the provisions hereof, will (i) conflict
with or result in a breach of any provision of CFB's Articles of Incorporation
or Bylaws or, or (ii) constitute or result in a Default under, or require
any Consent pursuant to, or result in the creation of any Lien on any
Asset of any CFB Company under, any Contract or Permit of any CFB
Company, or (iii) subject to receipt of the requisite approvals referred to
in Section 9.1(b) of this Agreement, violate any Law or Order applicable to
any CFB Company or any of their respective material Assets.
(c) Other than in connection or compliance with the
provisions of the Securities Laws, applicable state corporate and
securities Laws, and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with respect
to any employee benefit plans, or under, and other than Consents,
filings, or notifications which, if not obtained or made, are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CFB, no notice to, filing with, or Consent of, any public
body or authority is necessary for the consummation by CFB of the Merger and
the other transactions contemplated in this Agreement.
5.3 Capital Stock.
(a) The authorized capital stock of CFB consists of 750,000
shares of CFB Common Stock, of which 304,480 shares are issued and outstanding
as of the date of this Agreement and not more than 322,480 shares will be
issued and outstanding at the Effective Time. All of the issued and
outstanding shares of capital stock of CFB are duly and validly issued and
outstanding and are fully paid and nonassessable. None of the outstanding
shares of capital stock of CFB has been issued in violation of any
preemptive rights of the current or past shareholders of CFB. CFB has
reserved 50,000 shares of CFB Common Stock for issuance under the CFB Stock
Plan, pursuant to which options to purchase not more than 18,000 shares of
CFB Common Stock are outstanding.
(b) Except as set forth in Section 5.3(a) of this Agreement or
as disclosed in Section 5.3 of the CFB Disclosure Memorandum, there are no
shares of capital stock or other equity securities of CFB outstanding and
no outstanding Rights relating to the capital stock of CFB.
5.4 CFB Subsidiaries. CFB has disclosed in Section 5.4 of the CFB
Disclosure Memorandum all of the CFB Subsidiaries as of the date of this
Agreement. Except as disclosed in Section 5.4 of the CFB Disclosure
Memorandum, CFB or one of its Subsidiaries owns all of the issued and
outstanding shares of capital stock of each CFB Subsidiary. No equity
securities of any CFB Subsidiary are or may become required to be issued by
reason of any Rights, and there are no Contracts by which any CFB Subsidiary
is bound to issue (other than to another CFB Company) additional shares of
its capital stock or Rights or by which any CFB Company is or may be bound
to transfer any shares of the capital stock of any CFB Subsidiary (other
than to another CFB Company). There are no Contracts relating to the
rights of any CFB Company to vote or to dispose of any shares of the
capital stock of any CFB Subsidiary. All of the shares of capital stock of
each CFB Subsidiary are held by a CFB Company, and are fully paid and
(except pursuant to 12 USC Section 55 in the case of national banks and
comparable, applicable state Law, if any, in the case of state depository
institutions) nonassessable and are owned by the CFB Company free and clear
of any Lien. Each CFB Subsidiary is either a bank, a savings association,
or a corporation, and is duly organized, validly existing, and (as to
corporations) in good standing under the Laws of the jurisdiction in which
it is incorporated or organized, and has the corporate power and authority
necessary for it to own, lease, and operate its Assets and to carry on its
business as now conducted. Each CFB Subsidiary is duly qualified or licensed
to transact business as a foreign corporation in good standing in the
States of the United States and such foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it
to be so qualified or licensed, except for such jurisdictions in which the
failure to be so qualified or licensed is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CFB. Each CFB
Subsidiary that is a depository institution is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and the deposits in which are insured by the Bank Insurance Fund.
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5.5 Financial Statements. CFB has included in Section 5.5 of the
CFB Disclosure Memorandum, copies of all CFB Financial Statements for periods
ended prior to the date hereof and will deliver to CBI copies of all CFB
Financial Statements prepared subsequent to the date hereof. The CFB
Financial Statements (as of the dates thereof and for the periods covered
thereby) (i) are or, if dated after the date of this Agreement, will be in
accordance with the books and records of the CFB Companies, which are or will
be, as the case may be, complete, correct maintained in accordance with
good business practices, and (ii) present or will present, as the case may
be, fairly the consolidated financial position of the CFB Companies as of the
dates indicated and the consolidated results of operations, changes in
shareholders' equity and cash flows of the CFB Companies for the periods
indicated, in accordance with GAAP (subject to any exceptions as to
consistency specified therein or as may be indicated in the notes
thereto or, in the case of interim financial statements, to normal
recurring year-end adjustments that are not material in amount or effect).
5.6 Absence of Undisclosed Liabilities. No CFB Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CFB, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of CFB as of
December 31, 1994 and June 30, 1995, included in the CFB Financial Statements
delivered prior to the date of this Agreement or reflected in the notes
thereto. No CFB Company has incurred or paid any Liability since June 30,
1995, except for such Liabilities incurred or paid in the ordinary course of
business consistent with past business practice and which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
CFB.
5.7 Absence of Certain Changes or Events. Since December 31, 1994,
except as disclosed in the CFB Financial Statements delivered prior to the date
of this Agreement or as disclosed in Section 5.7 of the CFB Disclosure
Memorandum, (i) there have been no events, changes, or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CFB, and (ii) the CFB Companies have not taken any
action, or failed to take any action, prior to the date of this Agreement,
which action or failure, if taken after the date of this Agreement, would
represent or result in a material breach or violation of any of the covenants
and agreements of CFB provided in Article 7 of this Agreement.
5.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf of any
of the CFB Companies have been timely filed or requests for extensions have
been timely filed, granted, and have not expired for periods ended on or
before December 31, 1994, and on or before the date of the most recent
fiscal year end immediately preceding the Effective Time, and all returns
filed are complete and accurate to the Knowledge of CFB. All Taxes shown on
filed returns have been paid. As of the date of this Agreement, there is no
audit examination, deficiency, or refund Litigation with respect to any
Taxes, except as reserved against in the CFB Financial Statements or as
disclosed in Section 5.8 of the CFB Disclosure Memorandum. All Taxes and
other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid.
(b) None of the CFB Companies has executed an extension or
waiver of any statute of limitations on the assessment or collection of any Tax
due (excluding such statutes that relate to years currently under examination
by the Internal Revenue Service or other applicable taxing authorities)
that is currently in effect.
(c) Adequate provision for any Taxes due or to become due for
any of the CFB Companies for the period or periods through and including the
date of the respective CFB Financial Statements has been made and is reflected
on such CFB Financial Statements.
(d) Deferred Taxes of the CFB Companies have been provided for in
accordance with GAAP.
(e) Each of the CFB Companies is in compliance with, and its
records contain all information and documents (including properly completed
IRS Forms W-9) necessary to comply with, all applicable information reporting
and Tax withholding requirements under federal, state, and local Tax
Laws, and such records identify with specificity all accounts subject to
backup withholding under Section 3406 of the Internal Revenue Code.
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(f) CFB has not made any payments, is not obligated to make any
payments, and is not a party to any contract, agreement or other arrangement
that obligate it to make any payments that would be deemed not deductible
under Section 280G of the Internal Revenue Code.
(g) There are no Liens with respect to Taxes previously due and
payable upon any of the assets of CFB or any of its Subsidiaries.
(h) There has not been an ownership change, as defined in
Internal Revenue Code Section 382(g), of CFB or any of its Subsidiaries that
occurred during or after any Taxable Period in which CFB or any of its
Subsidiaries incurred a net operating loss that carries over to any Taxable
Period ending after December 31, 1994.
(i) Neither CFB nor any of its Subsidiaries has filed any
consent under Section 341(f) of the Internal Revenue Code concerning
collapsible corporations.
5.9 Allowance for Possible Loan Losses. The allowance for
possible loan or credit losses (the "Allowance") shown on the
consolidated balance sheets of CFB included in the most recent CFB
Financial Statements dated prior to the date of this Agreement was, and the
Allowance shown on the consolidated balance sheets of CFB included in the
CFB Financial Statements as of dates subsequent to the execution of this
Agreement will be, as of the dates thereof, adequate (within the meaning of
GAAP and applicable regulatory requirements or guidelines) to provide for
losses relating to or inherent in the loan and lease portfolios (including
accrued interest receivables) of the CFB Companies and other extensions of
credit (including letters of credit and commitments to make loans or extend
credit) by the CFB Companies as of the dates thereof.
5.10 Assets. Except as disclosed in Section 5.10 of the
CFB Disclosure Memorandum or as disclosed or reserved against in the CFB
Financial Statements delivered prior to the date of this Agreement, the CFB
Companies have good and marketable title, free and clear of all Liens, to
all of their respective Assets. All tangible properties used in the
businesses of the CFB Companies are in good condition, reasonable wear
and tear excepted, and are usable in the ordinary course of business
consistent with CFB's past practices. All Assets which are material to CFB's
business on a consolidated basis, held under leases or subleases by any of the
CFB Companies, are held under valid Contracts enforceable in accordance with
their respective terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be brought), and each such Contract is in full force and effect. The CFB
Companies currently maintain insurance similar in amounts, scope, and
coverage to that maintained by other peer banking organizations. None of
the CFB Companies has received notice from any insurance carrier that (i)
such insurance will be canceled or that coverage thereunder will be reduced
or eliminated, or (ii) premium costs with respect to such policies of
insurance will be substantially increased. There are presently no claims
pending under such policies of insurance and no notices have been given by
any CFB Company under such policies. The Assets of the CFB Companies include
all assets required to operate the business of the CFB Companies as presently
conducted.
5.11 Environmental Matters.
(a) To the Knowledge of CFB, each CFB Company, its
Participation Facilities, and its Loan Properties are, and have been, in
compliance with all Environmental Laws.
(b) To the Knowledge of CFB, there is no Litigation pending
or threatened before any court, governmental agency, or authority or other
forum in which any CFB Company or any of its Participation Facilities
has been or, with respect to threatened Litigation, may be named as a
defendant (i) for alleged noncompliance (including by any predecessor) with
any Environmental Law or (ii) relating to the release into the environment of
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any Hazardous Substance, whether or not occurring at, on, under, or
involving a site owned, leased, or operated by any CFB Company or any of its
Participation Facilities.
(c) To the Knowledge of CFB, there is no Litigation pending
or threatened before any court, governmental agency, or board or other forum
in which any of its Loan Properties (or CFB in respect of such Loan
Property) has been or, with respect to threatened Litigation, may be named as
a defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (ii) relating to
the release into the environment of any Hazardous Substance, whether or not
occurring at, on, under, or involving a Loan Property.
(d) To the Knowledge of CFB, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c).
(e) During the period of (i) any CFB Company's ownership or
operation of any of their respective current properties, (ii) any CFB
Company's participation in the management of any Participation Facility or
(iii) any CFB Company's holding of a security interest in a Loan Property,
there have been no releases of Hazardous Substances in, on, under, or
affecting such properties, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CFB. Prior to
the period of (i) any CFB Company's ownership or operation of any of their
respective current properties, (ii) any CFB Company's participation in the
management of any Participation Facility or (iii) any CFB Company's
holding of a security interest in a Loan Property, to the Knowledge of CFB,
there were no releases of Hazardous Substances in, on, under, or affecting any
such property, Participation Facility or Loan Property.
5.12 Compliance with Laws. CFB is duly registered as a bank
holding company under the BHC Act and Florida Law. Each CFB Company has in
effect all Permits necessary for it to own, lease, or operate its material
Assets and to carry on its business as now conducted, except for those Permits
the absence of which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on CFB, and there has occurred no
Default under any such Permit. Except as disclosed in Section 5.12 of
the CFB Disclosure Memorandum, none of the CFB Companies:
(a) is in violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business; and
(b) has received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any CFB
Company is not in compliance with any of the Laws or Orders which
such governmental authority or Regulatory Authority enforces, (ii)
threatening to revoke any Permits or (iii) requiring any CFB
Company to enter into or consent to the issuance of a cease and
desist order, formal agreement, directive, commitment, or memorandum
of understanding, or to adopt any Board resolution or similar
undertaking, which restricts materially the conduct of its business,
or in any manner relates to its capital adequacy, its credit or reserve
policies, its management, or the payment of dividends.
5.13 Labor Relations. No CFB Company is the subject of any
Litigation asserting that it or any other CFB Company has committed an unfair
labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other CFB Company to
bargain with any labor organization as to wages or conditions of
employment, nor is there any strike or other labor dispute involving any
CFB Company, pending or threatened, or to the Knowledge of CFB, is there any
activity involving any CFB Company's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
5.14 Employee Benefit Plans.
(a) CFB has disclosed in Section 5.14 of the CFB Disclosure
Memorandum, and has delivered or made available to CBI prior to the
execution of this Agreement copies in each case of, all pension,
retirement,
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profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus, or other incentive plan, all
other written employee programs, arrangements, or agreements, all medical,
vision, dental, or other health plans, all life insurance plans, and all
other employee benefit plans or fringe benefit plans, including "employee
benefit plans" as that term is defined in Section 3(3) of ERISA, currently
adopted, maintained by, sponsored in whole or in part by, or contributed
to by any CFB Company or Affiliate thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "CFB Benefit
Plans"). Any of the CFB Benefit Plans which is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to
herein as a "CFB ERISA Plan." Each CFB ERISA Plan which is also a "defined
benefit plan" (as defined in Section 414(j) of the Internal Revenue Code) is
referred to herein as a "CFB Pension Plan." Except as disclosed in Section
5.14 of the CFB Disclosure Memorandum, no CFB Pension Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(b) Except as disclosed in Section 5.14 of the CFB Disclosure
Memorandum, all CFB Benefit Plans are in compliance with the applicable
terms of ERISA, the Internal Revenue Code, including the 1986 amendments
thereto, and any other applicable Laws the breach or violation of which are
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CFB. Except as disclosed in Section 5.14 of the CFB
Disclosure Memorandum, each CFB ERISA Plan which is intended to be
qualified under Section 401(a) of the Internal Revenue Code has received a
favorable determination letter from the Internal Revenue Service, and CFB is
not aware of any circumstances likely to result in revocation of any such
favorable determination letter. To the Knowledge of CFB, no CFB Company has
engaged in a transaction with respect to any CFB Benefit Plan that, assuming
the taxable period of such transaction expired as of the date hereof, would
subject any CFB Company to a Tax imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA in amounts which are
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CFB.
(c) No CFB Pension Plan has any "unfunded current liability," as
that term is defined in Section 302(d)(8)(A) of ERISA, and the fair market
value of the assets of any such plan exceeds the plan's "benefit liabilities,"
as that term is defined in Section 4001(a)(16) of ERISA, when determined under
actuarial factors that would apply if the plan terminated in accordance with
all applicable legal requirements and assuming the adoption of interest rates
and mortality tables described in Section 417(e)(3)(A)(i) and the use of such
interest rates published in June 1995, and assuming that all participants take
a lump sum distribution of their vested accrued benefits on June 30, 1995.
Since the date of the most recent actuarial valuation, there has been (i) no
material change in the financial position of any CFB Pension Plan, (ii) no
change in the actuarial assumptions with respect to any CFB Pension Plan, and
(iii) no increase in benefits under any CFB Pension Plan as a result of plan
amendments or changes in applicable Law which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CFB or
materially adversely affect the funding status of any such plan. Neither any
CFB Pension Plan nor any "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by any CFB Company, or
the single-employer plan of any entity which is considered one employer with
CFB under Section 4001 of ERISA or Section 414 of the Internal Revenue Code or
Section 302 of ERISA (whether or not waived) (an "ERISA Affiliate") has an
"accumulated funding deficiency" within the meaning of Section 412 of the
Internal Revenue Code or Section 302 of ERISA. No CFB Company has provided, or
is required to provide, security to a CFB Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of
the Code.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV of ERISA has been or is expected
to be incurred by any CFB Company with respect to any ongoing, frozen, or
terminated single-employer plan or the single-employer plan of any ERISA
Affiliate. No CFB Company has incurred any withdrawal Liability with
respect to a multiemployer plan under Subtitle B of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate). No
notice of a "reportable event," within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been
required to be filed for any CFB Pension Plan or by any ERISA Affiliate
within the 12-month period ending on the date hereof.
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(e) Except as disclosed in Section 5.14 of the CFB Disclosure
Memorandum, no CFB Company has any Liability for retiree health and life
benefits under any of the CFB Benefit Plans and there are no
restrictions on the rights of such CFB Company to amend or terminate any
such Plan without incurring any Liability thereunder.
(f) Except as disclosed in Section 5.14 of the CFB Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director, officer or employee of any CFB
Company from any CFB Company under any CFB Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any CFB Benefit Plan, or
(iii) result in any acceleration of the time of payment or vesting of any such
benefit.
(g) All liabilities under any CFB benefit plan, other than
benefits accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of
ERISA, have been fully reflected on the CFB Financial Statements to the extent
required by and in accordance with GAAP.
5.15 Material Contracts. Except as disclosed in Section 5.15 of
the CFB Disclosure Memorandum or otherwise reflected in the CFB Financial
Statements, none of the CFB Companies, nor any of their respective Assets,
businesses, or operations, is a party to, or is bound or affected by, or
receives benefits under, (i) any employment, severance, termination,
consulting, or retirement Contract providing for aggregate payments to any
Person in any calendar year in excess of $50,000, (ii) any Contract relating
to the borrowing of money by any CFB Company or the guarantee by any CFB
Company of any such obligation (other than Contracts evidencing deposit
liabilities, purchases of federal funds, fully-secured repurchase
agreements, trade payables and Contracts relating to borrowings or
guarantees made in the ordinary course of business), (iii) any Contracts
between or among CFB Companies, and (iv) any other Contract or amendment
thereto that would be required to be filed as an exhibit to a Form 10-K
filed by CFB with the SEC (assuming for purposes hereof that CFB was required
to file such reports) (together with all Contracts referred to in Sections
5.10 and 5.14(a) of this Agreement, the "CFB Contracts"). With respect
to each CFB Contract and except as disclosed in Section 5.15 of the CFB
Disclosure Memorandum: (i) the Contract is in full force and effect; (ii) no
CFB Company is in Default thereunder; (iii) no CFB Company has repudiated
or waived any material provision of any such Contract; and (iv) no other
party to any such Contract is, to the Knowledge of CFB, in Default in any
respect or has repudiated or waived any material provision thereunder.
All of the indebtedness of any CFB Company for money borrowed is
prepayable at any time by such CFB Company without penalty or premium.
5.16 Legal Proceedings. There is no Litigation instituted or
pending, or, to the Knowledge of CFB, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against any CFB Company, or
against any Asset, interest, or right of any of them, that is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on CFB, nor are there any Orders of any Regulatory Authorities,
other governmental authorities, or arbitrators outstanding against any
CFB Company. Section 5.16 of the CFB Disclosure Memorandum includes a
summary report of all Litigation as of the date of this Agreement to which
any CFB Company is a party and which names a CFB Company as a defendant or
cross-defendant. No CFB Company nor any of their Affiliates or legal counsel
thereto are aware of any facts or circumstances that would (i) result in a
loss to any CFB Company relating to the First Union National Bank of Florida
vs. Henry Lee Wood litigation described in Section 5.16 of the CFB Disclosure
Memorandum, (ii) result in the failure of the Attorneys Title Insurance Fund,
Inc. to indemnify and make whole CFBO or any of its Affiliates pursuant to
that certain title policy ("Policy") provided by Attorney's Title
Insurance Fund, Inc. relating to the property (the "Property") that is
subject to the above-referenced litigation in the event that the above
referenced litigation is not resolved in favor of CFBO or its Affiliates,
(iii) otherwise give rise to a denial of coverage under the exclusion
provisions of the Policy, (iv) constitute any failure by CFBO or its
Affiliates to comply with the Conditions and Stipulations or other terms of
the Policy or (v) give rise to a claim that any CFB Company had either actual,
implied or constructive knowledge of the claim of title by First Union
National Bank of Florida to the property that is the subject of the above
referenced litigation prior to (a) December 1, 1991 and (b) the date of the
Policy. Absent any such defense to coverage, the Attorney's Title Insurance
Fund will be obligated to reimburse (up to $240,000, i.e., the maximum amount
of insurance coverage under the Policy)
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CFBO to its Affiliates for losses that CFBO or its Affiliates incur as a
result of the above referenced litigation, together with attorneys fees and
other costs as provided by the terms of the Policy.
5.17 Reports. Since January 1, 1990, or the date of organization
if later, each CFB Company has timely filed all reports and statements,
together with any amendments required to be made with respect thereto,
that it was required to file with (i) any Regulatory Authorities and (ii)
any applicable state securities or banking authorities (except, in the case
of state securities authorities, failures to file which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on CFB). As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules
thereto, complied in all material respects with all applicable Laws. As
of its respective date, each such report and document did not, in all
material respects, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading.
5.18 Statements True and Correct. No statement, certificate,
instrument, or other writing furnished or to be furnished by any CFB
Company or any Affiliate thereof to CBI pursuant to this Agreement or any other
document, agreement, or instrument referred to herein contains or will
contain any untrue statement of material fact or will omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any CFB Company or any Affiliate
thereof for inclusion in the Registration Statement to be filed by CBI with
the SEC will, when the Registration Statement becomes effective, be false
or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein not misleading. None
of the information supplied or to be supplied by any CFB Company or any
Affiliate thereof for inclusion in the Proxy Statement to be mailed to CFB's
shareholders in connection with the Shareholders' Meeting, and any other
documents to be filed or provided by a CFB Company or any Affiliate thereof
with or to the SEC or any other Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, and with respect to the Proxy Statement, when first mailed to the
shareholders of CFB, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or, in the case of the Proxy Statement or any amendment thereof
or supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of any proxy for the Shareholders' Meeting.
All documents that any CFB Company or any Affiliate thereof is responsible
for filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.
5.19 Accounting, Tax and Regulatory Matters. No CFB Company or
any Affiliate thereof has taken any action or has any Knowledge of any fact
or circumstance that is reasonably likely to (i) prevent the transactions
contemplated hereby, including the Merger, from qualifying for
pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially
impede or delay receipt of any Consents of Regulatory Authorities referred
to in Section 9.1(b) of this Agreement or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
5.20 State Takeover Laws. Each CFB Company has taken all
necessary action to exempt the transactions contemplated by this
Agreement from any applicable state takeover Law, including Sections
607.0901 and 607.0902 of the FBCA.
5.21 Charter Provisions. Each CFB Company has taken all action so
that the entering into of this Agreement and the consummation of the Merger
and the other transactions contemplated by this Agreement do not and will not
result in the grant of any rights to any Person under the Articles of
Incorporation, Bylaws or other governing instruments of any CFB Company or
restrict or impair the ability of CBI or any of its Subsidiaries to vote,
or otherwise to exercise the rights of a shareholder with respect to, shares
of any CFB Company that may be directly or indirectly acquired or controlled by
it.
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5.22 Directors' Agreements. Each of the directors of CFB has
executed and delivered to CBI an agreement in substantially the form of
Exhibit 2.
5.23 Shareholders' Agreements. Each of the directors of CFB and
each of the holders of 5% or more of the outstanding shares of CFB
Common Stock has executed and delivered to CBI an agreement in
substantially the form of Exhibit 3.
5.24 Federal Home Loan Bank of Atlanta. CFBO is a member on good
standing with the Federal Home Loan Bank of Atlanta.
5.25 Real Estate/Construction. Costs to CFB and its
Affiliates relating to the full and complete construction of the banking
office described in Section 5.7 of the CFB Disclosure Memorandum (the
"Construction Project") will not exceed, in the aggregate, $1,300,000.
The real property (the "Parcel") described in Section 5.7 of the CFB
Disclosure Memorandum is the subject of a valid and enforceable land sale
contract which provides for (i) a purchase price of $300,000 and (ii) a
closing date, at the discretion of CFB, not later than January 15, 1996.
There are no facts or circumstances that would result in the sale of the
Parcel for an amount (on a net basis) less than $290,000. Neither the
sale of the Parcel nor the Construction Project will be closed and
completed (i) prior to January 1, 1996, and (ii) without the prior written
consent of CBI which such consent shall not be unreasonably withheld. The
work performed and/or completed to date with respect to the Construction
Project has been performed and/or completed in accordance with the plan
specifications set forth in that certain Program Services Agreement
between Design Build Concepts, Inc. ("DBC") and CFBO. All monies currently
due from CFBO and its Affiliates to DBC have been paid in full. To the
Knowledge of CFBO, DBC has, in turn, properly paid all persons or
companies furnishing labor, materials or services to the Construction
Project and none of which have asserted any unresolved claims or placed
any liens on the Construction Project or the underlying real property. The
foundations of all structural improvements relating to the Construction
Project are located within the boundaries of the property owned in fee
simple by CFB or its Affiliates and within the buildable areas permitted by
applicable zoning and private covenants affecting such property.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF CBI
CBI hereby represents and warrants to CFB as follows:
6.1 Organization, Standing, and Power. CBI is a corporation duly
organized, validly existing, and in good standing under the Laws of the State
of Florida, and has the corporate power and authority to carry on its business
as now conducted and to own, lease and operate its material Assets. CBI is
duly qualified or licensed to transact business as a foreign corporation in
good standing in the States of the United States and foreign jurisdictions
where the character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on CBI.
6.2 Authority; No Breach By Agreement.
(a) CBI has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
CBI. This Agreement represents a legal, valid, and binding obligation of CBI,
enforceable against CBI in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding may be brought).
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(b) Neither the execution and delivery of this Agreement by CBI,
nor the consummation by CBI of the transactions contemplated hereby, nor
compliance by CBI with any of the provisions hereof, will (i) conflict
with or result in a breach of any provision of CBI's Articles of
Incorporation or Bylaws, or (ii) constitute or result in a Default under, or
require any Consent pursuant to, or result in the creation of any Lien on
any Asset of any CBI Company under, any Contract or Permit of any CBI
Company or, (iii) subject to receipt of the requisite approvals referred to
in Section 9.1(b) of this Agreement, violate any Law or Order applicable to
any CBI Company or any of their respective material Assets.
(c) Other than in connection or compliance with the
provisions of the Securities Laws, applicable state corporate and
securities Laws, and rules of the NASD, and other than Consents required from
Regulatory Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with respect to
any employee benefit plans, and other than Consents, filings, or notifications
which, if not obtained or made, are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CBI, no
notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by CBI of the Merger and the other
transactions contemplated in this Agreement.
6.3 Capital Stock.
(a) The authorized capital stock of CBI consists of 10,000,000
shares of CBI Common Stock, of which 4,047,643 shares are issued and
outstanding as of the date of this Agreement. All of the issued and
outstanding shares of CBI Capital Stock are, and all of the shares of CBI
Common Stock to be issued in exchange for shares of CFB Common Stock upon
consummation of the Merger, when issued in accordance with the terms of this
Agreement, will be, duly and validly issued and outstanding and fully paid
and nonassessable. None of the outstanding shares of CBI Capital Stock has
been, and none of the shares of CBI Common Stock to be issued in exchange
for shares of CFB Common Stock upon consummation of the Merger will be,
issued in violation of any preemptive rights of the current or past
shareholders of CBI. CBI has reserved 111,025 shares of CBI Common Stock
for issuance under the CBI Stock Plan and other option awards, pursuant to
which options to purchase no more than 67,275 shares of CBI Common Stock are
outstanding as of the date hereof.
(b) Except as set forth in Section 6.3(a) of this Agreement, or
as disclosed in Section 6.3 of the CBI Disclosure Memorandum, there are no
shares of capital stock or other equity securities of CBI outstanding and
no outstanding Rights relating to the capital stock of CBI.
6.4 Financial Statements. CBI has disclosed in Section 6.4 of the
CBI Disclosure Memorandum all CBI Financial Statements for periods ended
prior to the date hereof and will deliver to CFB copies of all CBI Financial
Statements prepared subsequent to the date hereof. The CBI Financial
Statements (as of the dates thereof and for the periods covered thereby) (i)
are or, if dated after the date of this Agreement, will be in accordance with
the books and records of the CBI Companies, which are or will be, as the
case may be, complete and correct and which have been or will have been, as
the case may be, maintained in accordance with good business practices, and
(ii) present or will present, as the case may be, fairly the consolidated
financial position of the CBI Companies as of the dates indicated and the
consolidated results of operations, changes in shareholders' equity and cash
flows of the CBI Companies for the periods indicated, in accordance with GAAP
(subject to exceptions as to consistency specified therein or as may be
indicated in the notes thereto or, in the case of interim financial
statements, to normal recurring year-end adjustments that are not material in
amount or effect).
6.5 Absence of Undisclosed Liabilities. No CBI Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CBI, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of CBI as of
December 31, 1994 and June 30, 1995, included in the CBI Financial
Statements or reflected in the notes thereto. No CBI Company has incurred
or paid any Liability since June 30, 1995, except for such Liabilities
incurred or paid in the ordinary course of business consistent with past
business practice and which would prevent, or materially delay or impair the
ability of CBI to timely consummate the transactions contemplated by this
Agreement.
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6.6 Absence of Certain Changes or Events. Since December 31, 1994,
except as disclosed in the CBI Financial Statements delivered prior to the
date of this Agreement or as disclosed in Section 6.6 of the CBI Disclosure
Memorandum, (i) there have been no events, changes or occurrences which
have had, or are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CBI, and (ii) the CBI Companies have
not taken any action, or failed to take any action, prior to the date of this
Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or violation of any
of the covenants and agreements of CBI provided in Article 7 of this Agreement.
6.7 Environmental Matters.
(a) To the Knowledge of CBI, each CBI Company, its
Participation Facilities, and its Loan Properties are, and have been, in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on CBI.
(b) To the Knowledge of CBI, there is no Litigation pending
or threatened before any court, governmental agency or board or other forum
in which any of its Loan Properties (or CBI in respect of such Loan
Property) has been or, with respect to threatened Litigation, may be named as
a defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (ii) relating to
the release, discharge, spillage or disposal into the environment of
any Hazardous Substance, whether or not occurring at, on, under or
involving a Loan Property, except for such Litigation pending or threatened
that is not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CBI.
(c) To the Knowledge of CBI, there is no Litigation pending
or threatened before any court, governmental agency or authority or other
forum in which any CBI Company or any of its Participation Facilities
has been or, with respect to threatened Litigation, may be named as a
defendant (i) for alleged noncompliance (including by any predecessor) with
any Environmental Law or (ii) relating to the release, discharge, spillage
or disposal into the environment of any Hazardous Substance, whether or not
occurring at, on, under or involving a site owned, leased or operated by
any CBI Company or any of its Participation Facilities, except for such
Litigation pending or threatened that is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on CBI.
(d) To the Knowledge of CBI, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c), except such as is
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CBI.
(e) During the period of (i) any CBI Company's ownership or
operation of any of their respective current properties, (ii) any CBI
Company's participation in the management of any Participation Facility, or
(iii) any CBI Company's holding of a security interest in a Loan Property, no
release, discharge, spillage or disposal of Hazardous Substances has occurred
in, on, under, or affecting such properties, except such as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on CBI. Prior to the period of (i) any CBI Company's ownership or operation
of any of their respective current properties, (ii) any CBI Company's
participation in the management of any Participation Facility, or (iii)
any CBI Company's holding of a security interest in a Loan Property, to the
Knowledge of CBI, no release, discharge, spillage or disposal of Hazardous
Substances has occurred in, on, under or affecting any such property,
Participation Facility or Loan Property, except such as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
CBI.
6.8 Compliance with Laws. CBI is duly registered as a bank holding
company under the BHC Act and Florida Law. Each CBI Company has in effect
all Permits necessary for it to own, lease or operate its material Assets
and to carry on its business as now conducted, except for those Permits the
absence of which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CBI, and there has
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occurred no Default under any such Permit. Except as disclosed in
Section 6.8 of the CBI Disclosure Memorandum, no CBI Company:
(a) is in violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business,
except for violations which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CBI; and
(b) has received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any CBI
Company is not in compliance with any of the Laws or Orders which
such governmental authority or Regulatory Authority enforces, where
such noncompliance is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on CBI, (ii) threatening
to revoke any Permits, the revocation of which is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
CBI, or (iii) requiring any CBI Company to enter into or consent to
the issuance of a cease and desist order, formal agreement, directive,
commitment or memorandum of understanding, or to adopt any Board
resolution or similar undertaking, which restricts materially the
conduct of its business, or in any manner relates to its capital
adequacy, its credit or reserve policies, its management, or the
payment of dividends.
6.9 Employee Benefit Plans. CBI has delivered or made available to
CFB prior to the execution of this Agreement copies in each case of all
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plan, all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans,
and all other employee benefit plans or fringe benefit plans, including
"employee benefit plans" as that term is defined in Section 3(3) of ERISA,
currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any CBI Company or Affiliate thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "CBI Benefit
Plans"). Any of the CBI Benefit Plans which is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to
herein as a "CBI ERISA Plan." Each CBI ERISA Plan which is also a "defined
benefit plan" (as defined in Section 414(j) of the Internal Revenue Code) is
referred to herein as a "CBI Pension Plan." No CBI Pension Plan is or has
been a multiemployer plan within the meaning of Section 3(37) of ERISA.
6.10 Legal Proceedings. There is no Litigation instituted or
pending, or, to the Knowledge of CBI, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against any CBI Company, or
against any Asset, interest, or right of any of them, that would prevent, or
materially delay or impair the ability of CBI to timely consummate the
transactions contemplated by this Agreement, nor are there any Orders of
any Regulatory Authorities, other governmental authorities, or arbitrators
outstanding against any CBI Company, that would prevent, or materially delay
or impair the ability of CBI to timely consummate the transactions
contemplated by this Agreement.
6.11 Reports. Since January 1, 1990, or the date of organization
if later, each CBI Company has filed all reports and statements, together with
any amendments required to be made with respect thereto, that it was required
to file with (i) the SEC, including, but not limited to, Forms 10-K, Forms
10-Q, Forms 8-K, and proxy statements, (ii) other Regulatory Authorities, and
(iii) any applicable state securities or banking authorities (except, in the
case of state securities authorities, failures to file which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CBI). As of their respective dates, each of such reports
and documents, including the financial statements, exhibits, and schedules
thereto, complied in all material respects with all applicable Laws. As of
its respective date, each such report and document did not, in all material
respects, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
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6.12 Statements True and Correct. No statement,
certificate, instrument or other writing furnished or to be furnished by
any CBI Company or any Affiliate thereof to CFB pursuant to this Agreement or
any other document, agreement or instrument referred to herein contains or
will contain any untrue statement of material fact or will omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any CBI Company or any Affiliate
thereof for inclusion in the Registration Statement to be filed by CBI with
the SEC, will, when the Registration Statement becomes effective, be false
or misleading with respect to any material fact, or omit to state any material
fact necessary to make the statements therein not misleading. None of the
information supplied or to be supplied by any CBI Company or any Affiliate
thereof for inclusion in the Proxy Statement to be mailed to CFB's
shareholders in connection with the Shareholders' Meeting, and any other
documents to be filed by any CBI Company or any Affiliate thereof with the SEC
or any other Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents are filed,
and with respect to the Proxy Statement, when first mailed to the shareholders
of CFB, be false or misleading with respect to any material fact, or
omit to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of any proxy for the Shareholders' Meeting. All
documents that any CBI Company or any Affiliate thereof is responsible for
filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable Law.
6.13 Accounting, Tax and Regulatory Matters. No CBI Company or
any Affiliate thereof has taken any action or has any Knowledge of any fact
or circumstance that is reasonably likely to (i) prevent the transactions
contemplated hereby, including the Merger, from qualifying for
pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially
impede or delay receipt of any Consents of Regulatory Authorities referred
to in Section 9.1(b) of this Agreement or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
6.14 Labor Relations. No CBI Company is the subject of any
Litigation asserting that it or any other CBI Company has committed an unfair
labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other CBI Company to
bargain with any labor organization as to wages or conditions of
employment, nor is there any strike or other labor dispute involving any
CBI Company, pending or threatened, or to the Knowledge of CBI, is there any
activity involving any CBI Company's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
6.15 Tax Matters.
(a) As of the date hereof, all Tax returns required to be filed
by or on behalf of any of the CBI Companies have been timely filed or
requests for extensions have been timely filed, granted, and have not expired
for periods ended on or before December 31, 1994, and on or before the date
of the most recent fiscal year end immediately preceding the Effective Time,
and all returns filed are complete and accurate to the Knowledge of CBI,
except for any such failure to file or to be complete or accurate which is
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CBI. As of the date hereof, all Taxes shown on filed
returns have been paid and as of the date of this Agreement, there is no
audit examination, deficiency, or refund Litigation with respect to any
Taxes, except as reserved against in the CBI Financial Statements or as
disclosed in Section 6.15 of the CBI Disclosure Memorandum or except such as
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CBI. As of the date hereof, all Taxes and other
Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid, except such as are not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on CBI.
(b) Adequate provision for any Taxes due or to become due for
any of the CBI Companies for the period or periods through and including the
date of the respective CBI Financial Statements has been made and is
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reflected on such CBI Financial Statements, except such as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
CBI.
(c) Deferred Taxes of the CFB Companies have been provided for
in accordance with GAAP, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CBI.
6.16 Allowance for Possible Loan Losses. The allowance for
possible loan or credit losses (the "Allowance") shown on the consolidated
balance sheets of CBI included in the most recent CBI Financial
Statements dated prior to the date of this Agreement was adequate (within the
meaning of GAAP and applicable regulatory requirements or guidelines) to
provide for losses relating to or inherent in the loan and lease portfolios
(including accrued interest receivables) of the CBI Companies and other
extensions of credit (including letters of credit and commitments to make
loans or extend credit) by the CBI Companies as of the date hereof.
6.17 Material Contracts. Except as disclosed in Section 6.17 of
the CBI Disclosure Memorandum or otherwise reflected in the CBI Financial
Statements dated prior to the date hereof, as of the date hereof, none of
the CBI Companies, nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected by, or receives benefits
under, (i) any employment, severance, termination, consulting, or retirement
Contract providing for aggregate payments to any Person in any calendar
year in excess of $500,000 and (ii) any other Contract or amendment thereto
that would be required to be filed as an exhibit to a Form 10-K filed by CBI
with the SEC which has not been so filed.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of CFB. Unless the prior written consent
of the other Party shall have been obtained, and except as otherwise
expressly contemplated herein, CFB shall and shall cause each of its
Subsidiaries to (a) operate its business only in the usual, regular, and
ordinary course, (b) preserve intact its business organization and Assets and
maintain its rights and franchises, and (c) take no action which would (i)
adversely affect the ability of any Party to obtain any Consents required
for the transactions contemplated hereby without imposition of a condition
or restriction of the type referred to in the last sentences of Section
9.1(b) or 9.1(c) of this Agreement, or (ii) adversely affect the ability of
any Party to perform its covenants and agreements under this Agreement.
7.2 Negative Covenants of CFB. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
CFB covenants and agrees that it will not do or agree or commit to do, or
permit any of its Subsidiaries to do or agree or commit to do, any of the
following without the prior written consent of the chief executive officer,
president or chief financial officer of CBI, which consent shall not be
unreasonably withheld:
(a) amend the Articles of Incorporation, Bylaws or other
governing instruments of any CFB Company, or
(b) incur any additional debt obligation or other obligation for
borrowed money, except in the ordinary course of the business of
CFB Subsidiaries consistent with past practices (which shall
include, for CFBO, creation of deposit liabilities, purchases of
federal funds, advances from the Federal Reserve Bank or Federal Home
Loan Bank, and entry into repurchase agreements fully secured by U.S.
government or agency securities), or impose, or suffer the
imposition, on any Asset of any CFB Company of any Lien or permit
any such Lien to exist (other than in connection with deposits,
repurchase agreements, bankers acceptances, "treasury tax and loan"
accounts established in the ordinary course of CBFO's business, the
satisfaction of legal requirements in the exercise of trust powers,
and Liens in effect as of the date hereof that are disclosed in the CFB
Disclosure Memorandum); or
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(c) repurchase, redeem, or otherwise acquire or exchange (other
than exchanges in the ordinary course under employee benefit plans),
directly or indirectly, any shares, or any securities convertible into
any shares, of the capital stock of any CFB Company, or declare or pay
any dividend or make any other distribution in respect of CFB's capital
stock; or
(d) except for this Agreement, or pursuant to the exercise of
stock options outstanding as of the date hereof and pursuant to
the terms thereof in existence on the date hereof, or as disclosed in
Section 7.2(d) of the CFB Disclosure Memorandum, issue, sell, pledge,
encumber, authorize the issuance of, enter into any Contract to issue,
sell, pledge, encumber, or authorize the issuance of, or otherwise permit
to become outstanding, any additional shares of CFB Common Stock or any
other capital stock of any CFB Company, or any stock appreciation rights,
or any option, warrant, conversion, or other right to acquire any
such stock, or any security convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital stock of
any CFB Company or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of CFB Common
Stock, or sell, lease, mortgage or otherwise dispose of or otherwise
encumber any shares of capital stock of any CFB Subsidiary (unless any
such shares of stock are sold or otherwise transferred to another CFB
Company) or any Asset other than in the ordinary course of business for
reasonable and adequate consideration; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of
three years or less, purchase any securities or make any material
investment, either by purchase of stock of securities, contributions to
capital, Asset transfers, or purchase of any Assets, in any Person other
than a wholly owned CFB Subsidiary, or otherwise acquire direct or
indirect control over any Person, other than in connection with (i)
foreclosures in the ordinary course of business, (ii) acquisitions of
control by a depository institution Subsidiary in its fiduciary capacity,
or (iii) the creation of new wholly owned Subsidiaries organized to
conduct or continue activities otherwise permitted by this Agreement; or
(g) grant any increase in compensation or benefits to the
employees or officers of any CFB Company, except in accordance with
past practice disclosed in Section 7.2(g) of the CFB Disclosure
Memorandum or as required by Law; pay any severance or termination pay or
any bonus other than pursuant to written policies or written Contracts in
effect on the date of this Agreement and disclosed in Section 7.2(g) of
the CFB Disclosure Memorandum; and enter into or amend any severance
agreements with officers of any CFB Company; grant any material increase
in fees or other increases in compensation or other benefits to directors
of any CFB Company except in accordance with past practice disclosed in
Section 7.2(g) of the CFB Disclosure Memorandum; or voluntarily
accelerate the vesting of any stock options or other stock-based
compensation or employee benefits; or
(h) enter into, amend or change any employment, benefit or
severance Contract between any CFB Company and any Person (unless such
amendment or change is required by Law) that the CFB Company does not
have the unconditional right to terminate without Liability (other than
Liability for services already rendered), at any time on or after the
Effective Time;
(i) adopt any new employee benefit plan of any CFB Company or
make any material change in or to any existing employee benefit plans
of any CFB Company other than any such change that is required by Law or
that, in the opinion of counsel, is necessary or advisable to maintain
the tax qualified status of any such plan; or
(j) make any significant change in any Tax or accounting
methods or systems of internal accounting controls, except as may
be appropriate to conform to changes in Tax Laws or regulatory accounting
requirements or GAAP; or
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(k) commence any Litigation other than in accordance with past
practice, or compromise of settle any Litigation involving any Liability
of any CFB Company for material money damages or restrictions upon the
operations of any CFB Company; or
(l) modify, amend or terminate any material Contract (including
any loan Contract or extension of credit with any Person or affiliated or
related persons with an aggregate unpaid balance exceeding $100,000 or
any loan Contract or extension of credit to any director, officer
principal (5% or greater) shareholder of CFB or their affiliated or
related persons) or waive, release, compromise or assign any material
rights or claims; or
(m) obtain any advances or otherwise borrow any monies from, or
become indebted to, the FHLB.
7.3 Covenants of CBI. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, CBI
covenants and agrees that it shall (x) continue to conduct its business and
the business of its Subsidiaries in a manner designed in its reasonable
judgment, to enhance the long-term value of the CBI Common Stock, and (y)
take no action which would (i) materially adversely affect the ability of
any Party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the
type referred to in the last sentences of Section 9.1(b) or 9.1(c) of this
Agreement, or (ii) materially adversely affect the ability of any Party
to perform its covenants and agreements under this Agreement; provided, that
the foregoing shall not prevent any CBI Company from discontinuing or
disposing of any of its Assets or business if such action is, in the judgment
of CBI, desirable in the conduct of the business of CBI and its Subsidiaries.
CBI further covenants and agrees that it will not, without the prior written
consent of the chief executive officer, president or chief financial officer
of CFB, which consent shall not be unreasonably withheld, amend the
Articles of Incorporation or Bylaws of CBI, in each case, in any manner
adverse to the holders of CFB Common Stock as compared to the rights of
holders of CBI Common Stock generally.
7.4 Adverse Changes in Condition. Each Party agrees to give
written notice promptly to the other Party upon becoming aware of the
occurrence or impending occurrence of any event or circumstance relating to
it or any of its Subsidiaries which (i) is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on it or (ii)
would cause or constitute a breach of any of its representations,
warranties, or covenants contained herein, and to use its reasonable efforts
to prevent or promptly to remedy the same.
7.5 Reports. Each Party and its Subsidiaries shall timely file
all reports required to be filed by it with Regulatory Authorities between
the date of this Agreement and the Effective Time and shall deliver to the
other Party copies of all such reports promptly after the same are filed. If
financial statements are contained in any such reports filed with the
SEC, such financial statements will fairly present the consolidated
financial position of the entity filing such statements as of the dates
indicated and the consolidated results of operations, changes in
shareholders' equity, and cash flows for the periods then ended in
accordance with GAAP (subject in the case of interim financial statements to
normal recurring year-end adjustments that are not material). As of their
respective dates, such reports filed with the SEC will comply in all material
respects with the Securities Laws and will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Any financial statements contained in any other reports to other Regulatory
Authorities shall be prepared in accordance with the Laws applicable to such
reports, and will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Shareholder Approval. At
a date determined by CBI in its sole discretion, CBI shall file the
Registration Statement with the SEC, and shall use its reasonable efforts to
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cause the Registration Statement to become effective under the 1933 Act and
take any action required to be taken under the applicable state Blue Sky or
securities Laws in connection with the issuance of the shares of CBI Common
Stock upon consummation of the Merger. CFB shall furnish all information
concerning it and the holders of its capital stock as CBI may reasonably
request in connection with such action. CFB shall call a Shareholders'
Meeting, to be held as soon as reasonably practicable after the Registration
Statement is declared effective by the SEC, for the purpose of voting upon
approval of this Agreement and such other related matters as it deems
appropriate. In connection with the Shareholders' Meeting, (i) CFB shall
prepare and file with the SEC a Proxy Statement and mail such Proxy Statement
to its shareholders, (ii) the Parties shall furnish to each other all
information concerning them that they may reasonably request in connection with
such Proxy Statement, (iii) the Board of Directors of CFB shall recommend
(subject to compliance with their fiduciary duties as advised by counsel) to
its shareholders the approval of this Agreement, and (iv) the Board of
Directors and officers of CFB shall (subject to compliance with their fiduciary
duties as advised by counsel) use their reasonable efforts to obtain such
shareholders' approval.
8.2 Exchange Listing. CBI shall use its reasonable efforts to list,
prior to the Effective Time, on the Nasdaq National Market the shares of CBI
Common Stock to be issued to the holders of CFB Common Stock pursuant to the
Merger.
8.3 Applications. CBI shall promptly prepare and file, and CFB
shall cooperate in the preparation and, where appropriate, filing of,
applications with all Regulatory Authorities having jurisdiction over the
transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement.
8.4 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, CBI shall execute and file the Articles of
Merger.
8.5 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated by
this Agreement, including using its reasonable efforts to lift or rescind any
Order adversely affecting its ability to consummate the transactions
contemplated herein and to cause to be satisfied the conditions referred to in
Article 9 of this Agreement; provided, that nothing herein shall preclude
either Party from exercising its rights under this Agreement. Each Party shall
use, and shall cause each of its Subsidiaries to use, its reasonable efforts to
obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
8.6 Investigation and Confidentiality.
(a) Prior to the Effective Time, each Party shall keep the other
Party advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause
to be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the
other Party reasonably requests, provided that such investigation shall be
reasonably related to the transactions contemplated hereby and shall not
interfere unnecessarily with normal operations. No investigation by a
Party shall affect the representations and warranties of the other Party.
(b) In addition to the Parties' respective obligations under
the Confidentiality Agreements, each Party shall, and shall cause its
advisers and agents to, maintain the confidentiality of all
confidential information furnished to it by the other Party concerning its
and its Subsidiaries' businesses, operations, and financial positions and
shall not use such information for any purpose except in furtherance of the
transactions contemplated by this Agreement. If this Agreement is
terminated prior to the Effective Time, each Party shall promptly return or
certify the destruction of all documents and copies thereof, and all work
papers containing confidential information received from the other Party.
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(c) CFB shall use its reasonable efforts to exercise its rights
under confidentiality agreements entered into with Persons which were
considering an Acquisition Transaction with CFB to preserve the confidentiality
of the information relating to CFB provided to such Persons and their
Affiliates and Representatives.
(d) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other Party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a breach of
any representation, warranty, covenant or agreement of the other Party or which
has had or is reasonably likely to have a Material Adverse Effect on the other
Party.
8.7 Press Releases. Prior to the Effective Time, CFB and CBI shall
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 8.7
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
8.8 Certain Actions. Except with respect to this Agreement and the
transactions contemplated hereby, no CFB Company nor any Affiliate thereof nor
any Representatives thereof retained by any CFB Company shall directly or
indirectly solicit any Acquisition Proposal by any Person. Except to the
extent necessary to comply with the fiduciary duties of CFB's Board of
Directors as advised by counsel, no CFB Company or any Affiliate or
Representative thereof shall furnish any non-public information that it is not
legally obligated to furnish, negotiate with respect to, or enter into any
Contract with respect to, any Acquisition Proposal, but CFB may communicate
information about such an Acquisition Proposal to its shareholders if and to
the extent that it is required to do so in order to comply with its legal
obligations as advised by counsel. CFB shall promptly notify CBI orally and in
writing in the event that it receives any inquiry or proposal relating to any
such transaction. CFB shall (i) immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any Persons conducted
heretofore with respect to any of the foregoing, and (ii) direct and use its
reasonable efforts to cause all of its Representatives not to engage in any of
the foregoing.
8.9 Accounting and Tax Treatment. Each of the Parties undertakes
and agrees to use its reasonable efforts to cause the Merger, and to take no
action which would cause the Merger not, to qualify for pooling-of-interests
accounting treatment and treatment as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code for federal income tax purposes.
8.10 State Takeover Laws. Each CFB Company shall take all
necessary steps to exempt the transactions contemplated by this Agreement
from, or if necessary challenge the validity or applicability of, any
applicable state takeover Law, including Sections 607.0901 and 607.0902 of the
FBCA.
8.11 Charter Provisions. Each CFB Company shall take all
necessary action to ensure that the entering into of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby do
not and will not result in the grant of any rights to any Person
under the Articles of Incorporation, Bylaws or other governing instruments
of any CFB Company or restrict or impair the ability of CBI or any of its
Subsidiaries to vote, or otherwise to exercise the rights of a shareholder
with respect to, shares of any CFB Company that may be directly or indirectly
acquired or controlled by it.
8.12 Agreement of Affiliates. CFB has disclosed in Section 8.12
of the CFB Disclosure Memorandum all Persons whom it reasonably believes is an
"affiliate" of CFB for purposes of Rule 145 under the 1933 Act. CFB shall use
its reasonable efforts to cause each such Person to deliver to CBI not later
than 30 days prior to the Effective Time, a written agreement, substantially
in the form of Exhibit 4, providing that such Person will not sell, pledge,
transfer, or otherwise dispose of the shares of CFB Common Stock held by
such Person except as contemplated by such agreement or by this Agreement and
will not sell, pledge, transfer, or otherwise dispose of the shares of CBI
Common Stock to be received by such Person upon consummation of the Merger
except in
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compliance with applicable provisions of the 1933 Act and the rules and
regulations thereunder and until such time as financial results covering at
least 30 days of combined operations of CBI and CFB have been published within
the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies. To qualify the Merger for pooling-of-interests
accounting treatment, shares of CBI Common Stock issued to such
affiliates of CFB in exchange for shares of CFB Common Stock shall not be
transferable until such time as financial results covering at least 30 days
of combined operations of CBI and CFB have been published within the meaning
of Section 201.01 of the SEC's Codification of Financial Reporting
Policies, regardless of whether each such affiliate has provided the
written agreement referred to in this Section 8.12 (and CBI shall be
entitled to place restrictive legends upon certificates for shares of CBI
Common Stock issued to affiliates of CFB pursuant to this Agreement to
enforce the provisions of this Section 8.12). CBI shall not be required to
maintain the effectiveness of the Registration Statement under the 1933 Act
for the purposes of resale of CBI Common Stock by such affiliates.
8.13 Employee Benefits and Contracts. Following the Effective
Time, CBI shall provide generally to officers and employees of the CFB
Companies employee benefits under employee benefit plans (other than stock
option or other plans involving the potential issuance of CBI Common Stock or
cash bonuses), on terms and conditions which when taken as a whole are
substantially similar to those currently provided by the CBI Companies to their
similarly situated officers and employees. For purposes of participation and
vesting, but otherwise not in calculating any benefits or benefit accrual under
such employee benefit plans, the service of the employees of the CFB Companies
prior to the Effective Time shall be treated as service with a CBI Company
participating in such employee benefit plan. CBI also shall cause the
Surviving Corporation and its Subsidiaries to honor in accordance with their
terms all provisions for vested benefits or other vested amounts earned or
accrued through the Effective Time under the CFB Benefit Plans.
8.14 Certain Policies of CFB. At the request of CBI, CFB shall
use its best efforts to modify and change its loan, litigation and real
estate valuation policies and practices (including loan classifications
and levels of reserves) prior to the Effective Time so as to be consistent
on a mutually satisfactory basis with those of CBI and GAAP. CFB shall
not be required to modify or change any such policies or practices,
however, until such time as (i) satisfaction of the conditions set forth in
Section 9.1(a), 9.1(b) and 9.1(c) of this Agreement, (ii) such time as CFB and
CBI agree that the Effective Time will occur prior to the public disclosure of
such modifications or changes in regular periodic earnings releases or
periodic reports filed with the SEC, and (iii) CBI acknowledges in writing
that all conditions to its obligation to consummate the Merger (and CBI's
rights to terminate this Agreement) have been waived or satisfied;
provided, that in all circumstances CFB shall make such modifications and
changes not later than immediately prior to the Effective Time. CFB's
representations, warranties, covenants and agreements contained in this
Agreement shall not be deemed to be untrue or breached in any respect for any
purpose as a consequence of any modifications or changes undertaken solely on
account of this Section 8.14.
8.15 Real Estate. CFB shall use all reasonable efforts to cause
the real property defined as the Parcel in Section 5.25 hereof to be sold
prior to Closing for an amount (on a net basis) of not less than $290,000.
8.16 Director and Officer Insurance. CFBO, at its option and
expense, may seek to maintain CFBO's existing directors' and officers'
liability insurance policy covering persons who are currently covered by
such insurance carried by CFBO for a period of two years after the Effective
Time on terms no less favorable than those in effect on the date hereof;
provided, that no CBI Company shall be obligated to make annual premium
payments in respect of such policy and further provided that the cost of such
policy extension shall not exceed a total of $18,000 and that all such
amounts shall be expenses of CFBO during the 1995 calendar year, and upon
and following the Effective Time, the CBI Companies shall be entitled to the
rights and benefits of such policy to the same extent as the CFB Companies,
including CFBO, were as of the date hereof.
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ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective
obligations of each Party to perform this Agreement and consummate the
Merger and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by both Parties
pursuant to Section 11.6 of this Agreement:
(a) Shareholder Approval. The shareholders of CFB shall have
adopted, approved, ratified and confirmed this Agreement, and the
consummation of the transactions contemplated hereby, including the
Merger, as and to the extent required by Law, by the provisions of
any governing instruments; the holders of not more than five (5%)
percent of the outstanding shares of CFB Common Stock shall have
given notice of their intent to exercise their statutory rights of
dissent.
(b) Regulatory Approvals. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities
required for consummation of the Merger shall have been obtained or
made and shall be in full force and effect and all waiting periods
required by Law shall have expired. No Consent obtained from any
Regulatory Authority which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in
a manner (including requirements relating to the raising of additional
capital or the disposition of Assets) which in the reasonable judgment
of the Board of Directors of CBI would so materially adversely affect
the economic or business benefits of the transactions contemplated by
this Agreement that, had such condition or requirement been known,
such Party would not, in its reasonable judgment, have entered into this
Agreement.
(c) Consents and Approvals. Each Party shall have obtained any
and all Consents required for consummation of the Merger (other than
those referred to in Section 9.1(b) of this Agreement) or for the
preventing of any Default under any Contract or Permit of such Party
which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on such
Party. No Consent so obtained which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted
in a manner which in the reasonable judgment of the Board of
Directors of CBI would so materially adversely affect the
economic or business benefits of the transactions contemplated by
this Agreement that, had such condition or requirement been known,
CBI would not, in its reasonable judgment, have entered into this
Agreement.
(d) Legal Proceedings. No court or governmental or
regulatory authority of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any Law or Order (whether
temporary, preliminary or permanent) or taken any other action
which prohibits, restricts in any material respect or makes illegal,
consummation of the transactions contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall be
effective under the 1933 Act, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued, no
action, suit, cease and desist or other order, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall
have been initiated and be continuing, and all necessary approvals
under state securities Laws or the 1933 Act or 1934 Act relating to the
issuance or trading of the shares of CBI Common Stock issuable pursuant
to the Merger shall have been received and remain in effect.
(f) Listing of CBI Common Stock. The shares of CBI Common Stock
issuable pursuant to the Merger shall have been approved for listing on
the Nasdaq National Market.
(g) Pooling Letters. The Parties shall have received a letter,
dated as of the Effective Time, in form and substance reasonably
acceptable to such Party, from Purvis, Gray and Company, or such other
certified public accountant mutually acceptable to the Parties, to
the effect that the Merger will qualify for pooling-of-interests
accounting treatment and that such firm is not aware of any matters
relating to CFB and
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its Subsidiaries which would preclude the Merger from qualifying for
pooling-of-interests accounting treatment.
(h) Tax Matters. Each Party shall have received a written
opinion of counsel from Alston & Bird, in form reasonably satisfactory
to such Parties (the "Tax Opinion"), to the effect that (i) the Merger
will constitute a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code, (ii) the exchange in the Merger of CFB
Common Stock for CBI Common Stock will not give rise to gain or loss
to the shareholders of CFB with respect to such exchange (except to the
extent of any cash received), and (iii) none of CFB or CBI will
recognize gain or loss as a consequence of the Merger (except for
amounts resulting from any required change in accounting methods
and any income and deferred gain recognized pursuant to Treasury
regulations issued under Section 1502 of the Internal Revenue Code),
and, with respect to the Bank Merger, that (i) the Bank Merger
will constitute a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code, and (ii) none of CFB, CBI, CFBO or CNBL
will recognize gain or loss as a consequence of the Bank Merger. In
rendering such Tax Opinion, such counsel shall be entitled to rely
upon representations of officers of CFB and CBI reasonably
satisfactory in form and substance to such counsel.
9.2 Conditions to Obligations of CBI. The obligations of CBI
to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by CBI pursuant to Section 11.6(a) of this
Agreement:
(a) Representations and Warranties. The representations and
warranties of CFB set forth or referred to in this Agreement shall be
true and correct as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations
and warranties had been made on and as of the Effective Time
(provided that representations and warranties which are confined to a
specified date shall speak only as of such date).
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of CFB to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with.
(c) Certificates. CFB shall have delivered to CBI (i) a
certificate, dated as of the Effective Time and signed on its behalf
by its chief executive officer and its chief financial officer, to
the effect that the conditions of its obligations set forth in Section
9.2(a) and 9.2(b) of this Agreement have been satisfied, and (ii)
certified copies of resolutions duly adopted by CFB's Board of
Directors and shareholders evidencing the taking of all corporate
action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the
transactions contemplated hereby, all in such reasonable detail as CBI
and its counsel shall request.
(d) Opinion of Counsel. CBI shall have received an opinion of
Hicks & MacQuarrie, counsel to CFB, dated as of the Closing, in form
reasonably satisfactory to CBI, as to the matters set forth in Exhibit
5.
(e) Accountant's Letters. CBI shall have received from Purvis,
Gray & Company letters dated not more than five days prior to (i) the
date of the Joint Proxy Statement and (ii) the Effective Time, with
respect to certain financial information regarding CFB, in form
and substance reasonably satisfactory to CBI, which letters shall be
based upon customary specified procedures undertaken by such firm in
accordance with Statement of Auditing Standard No. 72.
(f) Affiliates' Agreements. CBI shall have received from each
affiliate of CFB the affiliates letter referred to in Section 8.12
of this Agreement, to the extent necessary to assure in the
reasonable judgment of CBI that the transactions contemplated
hereby will qualify for pooling-of-interests accounting treatment.
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(h) Claims Letters. Each of the directors and officers of CFB
and CFBO shall have executed and delivered to CBI letters in
substantially the form of Exhibit 6.
(i) Survey. CFB shall provide to CBI an updated survey for
the Construction Project, of sufficient quality and detail for
title insurance purposes, showing that the foundations of all
structural improvements are located within the boundaries of the
property owned in fee simple by CFB or its Affiliates and within the
buildable areas permitted by applicable zoning and private covenants
affecting such property.
(j) Options. All options to purchase shares of CFB Common Stock
outstanding on the date hereof as provided in Section 5.3 hereof and
in the CFB Disclosure Memorandum, shall have been exercised in full,
and no CFB Company nor any of their Affiliates or successors shall have
paid or be obligated to pay any cash or other consideration (except
shares of CFB Common Stock issuable upon exercise) for, or in
respect of, such options.
9.3 Conditions to Obligations of CFB. The obligations of CFB to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by CFB pursuant to Section 11.6(b) of this Agreement:
(a) Representations and Warranties. The representations and
warranties of CBI set forth or referred to in this Agreement shall
be true and correct as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations
and warranties had been made on and as of the Effective Time
(provided that representations and warranties which are confined to
a specified date shall speak only as of such date), except as expressly
contemplated by this Agreement.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of CBI to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with.
(c) Certificates. CBI shall have delivered to CFB (i) a
certificate, dated as of the Effective Time and signed on its behalf
by its chief executive officer and its chief financial officer, to
the effect that the conditions of its obligations set forth in Section
9.3(a) and 9.3(b) of this Agreement have been satisfied, and (ii)
certified copies of resolutions duly adopted by CBI's Board of
Directors evidencing the taking of all corporate action necessary
to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated
hereby, all in such reasonable detail as CFB and its counsel shall
request.
(d) Opinion of Counsel. CFB shall have received an opinion of
Alston & Bird, special counsel to CBI, dated as of the Effective Time,
in form reasonably acceptable to CFB, as to the matters set forth in
Exhibit 7.
ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
shareholders of CFB, this Agreement may be terminated and the Merger abandoned
at any time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of CBI and the
Board of Directors of CFB; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in
this Agreement) in the event of a material breach by the other
Party of any representation or warranty contained in this
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Agreement which cannot be or has not been cured within 30 days after
the giving of written notice to the breaching Party of such breach; or
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in
this Agreement) in the event of a material breach by the other Party
of any covenant or agreement contained in this Agreement which cannot
be or has not been cured within 30 days after the giving of written
notice to the breaching Party of such breach; or
(d) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in
this Agreement) in the event (i) any Consent of any Regulatory
Authority required for consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final
nonappealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal, or (ii)
the shareholders of CFB fail to vote their approval of this
Agreement and the transactions contemplated hereby as required by the
FBCA and the rules of the NASD at the Shareholders' Meeting where the
transactions were presented to such shareholders for approval and voted
upon; or
(e) By the Board of Directors of either Party in the event that
the Merger shall not have been consummated by April 30, 1996, if the
failure to consummate the transactions contemplated hereby on or before
such date is not caused by any breach of this Agreement by the
Party electing to terminate pursuant to this Section 10.1(e); or
(f) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in
this Agreement) in the event that any of the conditions precedent
to the obligations of such Party to consummate the Merger cannot be
satisfied or fulfilled by the date specified in Section 10.1(e) of this
Agreement; or
(g) By CBI, in the event that the Board of Directors of CFB
shall have failed to reaffirm its approval of the Merger and the
transactions contemplated by this Agreement (to the exclusion of any
other Acquisition Proposal), or shall have resolved not to reaffirm the
Merger, or shall have affirmed, recommended or authorized entering into
any other Acquisition Proposal or other transaction involving a merger,
share exchange, consolidation or transfer of substantially all of the
Assets of CFB.
10.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, this
Agreement shall become void and have no effect, except that (i) the provisions
of this Section 10.2 and Article 11 and Section 8.6(b) of this Agreement shall
survive any such termination and abandonment, and (ii) a termination pursuant
to Sections 10.1(b), 10.1(c) or 10.1(f) of this Agreement shall not relieve the
breaching Party from Liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.
10.3 Non-Survival of Representations and Covenants. The
respective representations, warranties, obligations, covenants, and
agreements of the Parties shall not survive the Effective Time except
this Section 10.3 and Articles 2, 3, 4 and 11 and Sections 8.12 and 8.13 of
this Agreement.
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ARTICLE 11
MISCELLANEOUS
11.1 Definitions.
(a) Except as otherwise provided herein, the capitalized terms
set forth below shall have the following meanings:
"Acquisition Proposal" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger,
acquisition of all of the stock or assets of, or other business
combination involving such Party or any of its Subsidiaries or the
acquisition of a substantial equity interest in, or a substantial
portion of the assets of, such Party or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person;
(ii) any officer, director, partner, employer, or direct or indirect
beneficial owner of any 5% or greater equity or voting interest of
such Person; or (iii) any other Person for which a Person described
in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger,
including the Exhibits delivered pursuant hereto and incorporated herein
by reference.
"Articles of Merger" shall mean the Articles of Merger to be
executed by CBI and filed with the Secretary of State of the State of
Florida relating to the Merger as contemplated by Section 1.1 of this
Agreement.
"Assets" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or
not carried on the books and records of such Person, and whether or not
owned in the name of such Person or any Affiliate of such Person and
wherever located.
"BHC Act" shall mean the federal Bank Holding Company Act of
1956, as amended.
"CBI Capital Stock" shall mean, collectively, the CBI Common Stock
and any other class or series of capital stock of CBI.
"CBI Common Stock" shall mean the $.01 par value common stock of
CBI.
"CBI Companies" shall mean, collectively, CBI and all CBI
Subsidiaries.
"CBI Disclosure Memorandum" shall mean the written information
entitled "Citi-Bancshares, Inc. Disclosure Memorandum" delivered prior to
the date of this Agreement to CFB describing in reasonable detail the
matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made. Information disclosed with
respect to one Section shall not be deemed to be disclosed for purposes
of any other Section not specifically referenced with respect thereto.
"CBI Financial Statements" shall mean (i) the consolidated
statements of condition (including related notes and schedules, if any) of
CBI as of June 30, 1995, and as of December 31, 1994 and 1993, and the
related statements of income, changes in shareholders' equity, and cash
flows (including related notes and schedules, if any) for the six months
ended June 30, 1995, and for each of the three years ended December 31,
1994, 1993 and 1992, as filed by CBI in SEC Documents, and (ii) the
consolidated statements
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of condition of CBI (including related notes and schedules, if any) and
related statements of income, changes in shareholders' equity, and cash
flows (including related notes and schedules, if any) included in SEC
Documents filed with respect to periods ended subsequent to June 30, 1995.
"CBI Stock Plan" shall mean the existing stock option and other
stock-based compensation plan of CBI designated as follows: 1994 Stock
Option and Stock Appreciation Rights Plan.
"CBI Subsidiaries" shall mean the Subsidiaries of CBI and any
corporation, bank, savings association, or other organization acquired as a
Subsidiary of CBI in the future and owned by CBI at the Effective Time.
"CFB Common Stock" shall mean the $.10 par value common stock of
CFB.
"CFB Companies" shall mean, collectively, CFB and all CFB
Subsidiaries.
"CFB Disclosure Memorandum" shall mean the written information
entitled "Citizens First Bancshares, Inc. Disclosure Memorandum" delivered
prior to the date of this Agreement to CBI describing in reasonable detail
the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made. Information disclosed with respect to
one Section shall not be deemed to be disclosed for purposes of any other
Section not specifically referenced with respect thereto.
"CFB Financial Statements" shall mean (i) the audited consolidated
balance sheets (including related notes and schedules, if any) of CFB as of
December 31, 1994 and 1993, and the related audited statements of income,
changes in shareholders' equity, and cash flows (including related notes
and schedules, if any) for each of the three fiscal years ended December
31, 1994, 1993 and 1992, and the unaudited balance sheets as of June 30,
1995, and (ii) the consolidated balance sheets of CFB (including related
notes and schedules, if any) and related statements of income, changes in
shareholders' equity, and cash flows (including related notes and
schedules, if any) with respect to periods ended subsequent to June 30,
1995, and such financial statements as of and for the years ended December
31, 1995 shall be audited by an independent certified public accounting
firm, with a nonqualified opinion expressed thereon by such independent
certified public accounting firm, and (iii) the balance sheets, and related
statements of income and changes in shareholders' equity (including related
notes and schedules, if any) filed as "Call Reports" by CFB with the FDIC
as of and for the periods ending June 30, 1995, and as of and for each
period subsequent to June 30, 1995.
"CFB Stock Plan" shall mean the existing stock option and other
stock-based compensation plan of CFB designated as follows: 1993
Nonstatutory Stock Option Plan.
"CFB Subsidiaries" shall mean the Subsidiaries of CFB, which shall
include the CFB Subsidiaries described in Section 5.4 of this Agreement and
any corporation, bank, savings association, or other organization acquired
as a Subsidiary of CFB in the future and owned by CFB at the Effective
Time.
"CFBO" shall mean Citizens First Bank of Ocala, a Florida bank,
wholly-owned by CFB.
"CNBL" shall mean Citizens National Bank of Leesburg, a national
banking association, wholly-owned by CBI.
"Closing Date" shall mean the date on which the Closing occurs.
"Confidentiality Agreement" shall mean those certain
confidentiality provisions contained in that certain Letter of Intent dated
September 14, 1995, between CFB and CBI.
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"Consent" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person pursuant
to any Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding or undertaking of
any kind or character, or other document to which any Person is a party or
that is binding on any Person or its capital stock, Assets or business.
"Default" shall mean (i) any breach or violation of or default
under any Contract, Order or Permit, (ii) any occurrence of any event that
with the passage of time or the giving of notice or both would constitute a
breach or violation of or default under any Contract, Order or Permit, or
(iii) any occurrence of any event that with or without the passage of time
or the giving of notice would give rise to a right to terminate or revoke,
change the current terms of, or renegotiate, or to accelerate, increase, or
impose any Liability under, any Contract, Order or Permit, where, in any
such event, such Default is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on a Party.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air,
surface water, ground water, land surface or subsurface strata) and which
are administered, interpreted or enforced by the United States
Environmental Protection Agency and state and local agencies with
jurisdiction over, and including common law in respect of, pollution or
protection of the environment, including the Comprehensive Environmental
Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions,
discharges, releases or threatened releases of any Hazardous Material, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of any Hazardous
Material.
"ERISA Affiliate" shall have the meaning provided in Section 5.14
of this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exhibits" 1 through 7, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this Agreement. Such Exhibits are
hereby incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or document
without being attached hereto.
"FHLB" shall mean the Federal Home Loan Bank of Atlanta.
"FBCA" shall mean the Florida Business Corporation Act.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"Hazardous Substance" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance or toxic substance
(as those terms are defined by any applicable Environmental Laws) and (ii)
any chemicals, pollutants, contaminants, petroleum, petroleum products, or
oil (and specifically shall include asbestos requiring abatement, removal
or encapsulation pursuant to the requirements of governmental authorities
and any polychlorinated biphenyls).
"Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a Person (including references
to such Person being aware of a particular matter) shall mean those facts
that are known or should reasonably have been known after due
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inquiry by the Chairman, President, Chief Financial Officer, Chief
Accounting Officer, Chief Credit Officer, General Counsel, any Assistant or
Deputy General Counsel, or any Senior or Executive Vice President of such
Person and the knowledge of any such persons obtained or which would have
been obtained from a reasonable investigation.
"Law" shall mean any code, law, ordinance, regulation, reporting
or licensing requirement, rule, or statute or written, publicly available
interpretation applicable to a Person or its Assets, Liabilities or
business, including those promulgated, interpreted or enforced by any
Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost or expense
(including costs of investigation, collection and defense), claim,
deficiency, guaranty or endorsement of or by any Person (other than
endorsements of notes, bills, checks, and drafts presented for collection
or deposit in the ordinary course of business) of any type, whether
accrued, absolute or contingent, liquidated or unliquidated, matured or
unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation, infringement,
lien, mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, (ii) for depository institution Subsidiaries
of a Party, pledges to secure deposits and other Liens incurred in the
ordinary course of the banking business, and (iii) Liens which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on a Party.
"Litigation" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, demand letter, governmental or
other examination or investigation, hearing, inquiry, administrative or
other proceeding, or notice (written or oral) by any Person alleging
potential Liability or requesting information relating to or affecting a
Party, its business, its Assets (including Contracts related to it), or the
transactions contemplated by this Agreement, but shall not include regular,
periodic examinations of depository institutions and their Affiliates by
Regulatory Authorities.
"Loan Property" shall mean any property owned by the Party in
question or by any of its Subsidiaries or in which such Party or Subsidiary
holds a security interest, and, where required by the context, includes the
owner or operator of such property, but only with respect to such property.
"Material Adverse Effect" on a Party shall mean an event, change
or occurrence which, individually or together with any other event, change
or occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of such Party and its Subsidiaries,
taken as a whole, or (ii) the ability of such Party to perform its
obligations under this Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement, provided that "material
adverse impact" shall not be deemed to include the impact of (x) changes in
banking and similar Laws of general applicability or interpretations
thereof by courts or governmental authorities, (y) changes in generally
accepted accounting principles or regulatory accounting principles
generally applicable to banks and their holding companies, and (z) the
Merger and compliance with the provisions of this Agreement on the
operating performance of the Parties. "Material" for purposes of this
Agreement shall be determined in light of the facts and circumstances of
the matter in question; provided that any specific monetary amount stated
in this Agreement shall determine materiality in that instance.
"Mergers" shall mean the Merger and the Bank Merger, collectively.
"NASD" shall mean the National Association of Securities Dealers,
Inc.
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"Nasdaq National Market" shall mean the National Market System of
the National Association of Securities Dealers Automated Quotations System.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency or Regulatory Authority.
"Participation Facility" shall mean any facility or property in
which the Party in question or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such facility or property, but only with respect to such
facility or property.
"Party" shall mean either CFB or CBI, and "Parties" shall mean
both CFB and CBI.
"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, order, easement, filing,
franchise, license, notice, permit, or right to which any Person is a party
or that is or may be binding upon or inure to the benefit of any Person or
its securities, Assets or business.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting
in a representative capacity.
"Proxy Statement" shall mean the proxy statement used by CFB to
solicit the approval of its shareholders of the transactions contemplated
by this Agreement, which shall include the prospectus of CBI relating to
the issuance of the CBI Common Stock to holders of CFB Common Stock.
"Registration Statement" shall mean the Registration Statement on
Form S-4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by CBI
under the 1933 Act with respect to the shares of CBI Common Stock to be
issued to the shareholders of CFB in connection with the transactions
contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the United
States Department of Justice, the Board of the Governors of the Federal
Reserve System, the Office of the Comptroller of the Currency, the Federal
Deposit Insurance Corporation,, the Florida State Banking Department, all
state regulatory agencies having jurisdiction over the Parties and their
respective Subsidiaries, the NASD, and the SEC.
"Representative" shall mean any investment banker, financial
advisor, attorney, accountant, consultant, or other representative of a
Person.
"Rights" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings,
warrants, or other binding obligations of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares of
the capital stock of a Person or by which a Person is or may be bound to
issue additional shares of its capital stock or other Rights.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"SEC Documents" shall mean all forms, proxy statements,
registration statements, reports, schedules, and other documents filed, or
required to be filed, by a Party or any of its Subsidiaries with any
Regulatory Authority pursuant to the Securities Laws.
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"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder.
"Shareholders' Meeting" shall mean the meeting of the shareholders
of CFB to be held pursuant to Section 8.1 of this Agreement, including any
adjournment or adjournments thereof.
"Significant Subsidiary" shall mean any present or future
consolidated Subsidiary of the Party in question, the assets of which
constitute ten percent (10%) or more of the consolidated assets of such
Party as reflected on such Party's consolidated statement of condition
prepared in accordance with GAAP.
"Subsidiaries" shall mean all those corporations, banks,
associations, or other entities of which the entity in question owns or
controls 50% or more of the outstanding equity securities either directly
or through an unbroken chain of entities as to each of which 50% or more of
the outstanding equity securities is owned directly or indirectly by its
parent; provided, there shall not be included any such entity acquired
through foreclosure or any such entity the equity securities of which are
owned or controlled in a fiduciary capacity.
"Surviving Corporation" shall mean CBI as the surviving
corporation resulting from the Merger.
"Tax" or "Taxes" shall mean any federal, state, county, local, or
foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, occupancy, and other taxes,
assessments, charges, fares, or impositions, including interest, penalties,
and additions imposed thereon or with respect thereto.
(b) The terms set forth below shall have the meanings ascribed
thereto in the referenced sections:
Allowance Section 6.16
Bank Merger Section 1.4
Bank Plan Section 1.4
CBI Benefit Plans Section 6.9
CBI ERISA Plan Section 6.9
CBI Pension Plan Section 6.9
CFB Benefit Plans Section 5.14
CFB Contracts Section 6.17
CFB ERISA Plan Section 5.14
CFB Options Section 5.14
CFB Pension Plan Section 5.14
Closing Section 1.2
Construction Project Section 1.2
Effective Time Section 1.3
ERISA Affiliate Section 5.14
Exchange Agent Section 4.1
Exchange Ratio Section 3.1(c)
Parcel Section 1.2
Merger Section 1.1
Tax Opinion Section 9.1(h)
(c) Any singular term in this Agreement shall be deemed to include
the plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
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11.2 Expenses.
(a) Except as otherwise provided in this Section 11.2, each of the
Parties shall bear and pay all direct costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing fees, and fees
and expenses of its own financial or other consultants, investment bankers,
accountants, and counsel, except that each of the Parties shall bear and pay
one-half of the filing fees payable in connection with the Registration
Statement and the Joint Proxy Statement and printing costs incurred in
connection with the printing of the Registration Statement and the Joint Proxy
Statement.
(b) Nothing contained in this Section 11.2 shall constitute or
shall be deemed to constitute liquidated damages for the willful breach by a
Party of the terms of this Agreement or otherwise limit the rights of the
nonbreaching Party.
11.3 Brokers and Finders. Except for The Carson Medlin Company as
to CBI, each of the Parties represents and warrants that neither it nor any of
its officers, directors, employees, or Affiliates has employed any broker or
finder or incurred any Liability for any financial advisory fees, investment
bankers' fees, brokerage fees, commissions, or finders' fees in connection with
this Agreement or the transactions contemplated hereby. In the event of a
claim by any broker or finder based upon his or its representing or being
retained by or allegedly representing or being retained by CFB or CBI, each of
CFB and CBI, as the case may be, agrees to indemnify and hold the other Party
harmless from and against any Liability in respect of any such claim.
11.4 Entire Agreement. Except as otherwise expressly provided
herein, this Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement between the Parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral (except, as to Section
8.6(b) of this Agreement, for the Confidentiality Agreement). Nothing in this
Agreement expressed or implied, is intended to confer upon any Person, other
than the Parties or their respective successors, whether third party
beneficiaries or otherwise, any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, other than as provided in Sections 8.13
of this Agreement.
11.5 Amendments. To the extent permitted by Law, this Agreement
may be amended by a subsequent writing signed by each of the Parties upon the
approval of the Boards of Directors of each of the Parties, whether before or
after shareholder approval of this Agreement has been obtained; provided, that
after any such approval by the holders of CFB Common Stock, there shall be made
no amendment that pursuant to the FBCA requires further approval by such
shareholders without the further approval of such shareholders; and further
provided, that after any such approval by the holders of CFB Common Stock, the
provisions of this Agreement relating to the manner or basis in which shares of
CFB Common Stock will be exchanged for shares of CBI Common Stock shall not be
amended after the Shareholders' Meetings in a manner adverse to the holders of
CFB Common Stock without any requisite approval of the holders of the issued
and outstanding shares of CFB Common Stock entitled to vote thereon.
11.6 Waivers.
(a) Prior to or at the Effective Time, CBI, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by CFB, to waive or extend the time for the compliance or fulfillment
by CFB of any and all of its obligations under this Agreement, and to waive any
or all of the conditions precedent to the obligations of CBI under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of CBI.
(b) Prior to or at the Effective Time, CFB, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by CBI, to waive or extend the time for the compliance or fulfillment
by CBI of any and all of its
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obligations under this Agreement, and to waive any or all of the conditions
precedent to the obligations of CFB under this Agreement, except any condition
which, if not satisfied, would result in the violation of any Law. No such
waiver shall be effective unless in writing signed by a duly authorized officer
of CFB.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained
in this Agreement in one or more instances shall be deemed to be or construed
as a further or continuing waiver of such condition or breach or a waiver of
any other condition or of the breach of any other term of this Agreement.
11.7 Assignment. Except as expressly contemplated hereby, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any Party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
11.8 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
pre-paid, or by courier or overnight carrier, to the persons at the addresses
set forth below (or at such other address as may be provided hereunder), and
shall be deemed to have been delivered as of the date so delivered:
<TABLE>
<S> <C>
CFB: Citizens First Bancshares, Inc.
750 S.W. Martin Luther King, Jr. Ave.
Ocala, Florida 34478
Telecopy Number: (904) 732-0540
Attention: H. Reid Sides, Jr.
Copy to Counsel: Hicks & MacQuarrie
2303 S.E. 17th Street
Ocala, Florida 34471
Telecopy Number: (904) 351-2284
Attention: C. Daniel Hicks
CBI: Citi-Bancshares, Inc.
1211 North Boulevard West
Leesburg, Florida 34748-5351
Telecopy Number: (904) 326-4738
Attention: Kenneth W. Mullis
Copy to Counsel: Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telecopy Number: (404) 881-7777
Attention: Ralph F. MacDonald, III
</TABLE>
11.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Florida, without regard
to any applicable conflicts of Laws.
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11.10 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
11.11 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.12 Interpretations. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against any
party, whether under any rule of construction or otherwise. No party to
this Agreement shall be considered the draftsman. The parties acknowledge
and agree that this Agreement has been reviewed, negotiated and accepted by
all parties and their attorneys and shall be construed and interpreted
according to the ordinary meaning of the words used so as fairly to
accomplish the purposes and intentions of all parties hereto.
11.13 Enforcement of Agreement. The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement was not performed in accordance with its specific terms or
was otherwise breached. It is accordingly agreed that the Parties
shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
11.14 Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to
be executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
<TABLE>
<S> <C>
ATTEST: CITI-BANCSHARES, INC.
/s/ BOBBY A. SULLIVAN By: /s/ KENNETH W. MULLIS
- --------------------------- ---------------------------
Secretary President
[CORPORATE SEAL]
ATTEST: CITIZENS FIRST BANCSHARES, INC.
/s/ CHERYL R. ROSS By: /s/ H. REID SIDES, JR.
- --------------------------- ---------------------------
Secretary President
</TABLE>
[CORPORATE SEAL]
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LIST OF EXHIBITS
Exhibit Number Description
1. Bank Plan of Merger. (Sec. 1.4).
2. Form of Directors' Agreement. (Sec. 5.22).
3. Form of Shareholders' Agreement. (Sec. 5.25).
4. Form of agreement of affiliates of CFB. (Sec.
8.12, 9.2(g)).
5. Matters as to which Hicks & MacQuarrie will opine.
(Sec. 9.2(d)).
6. Form of Claims Letter (Sec. 9.2(h)).
7. Matters as to which Alston & Bird will opine. (Sec.
9.3(d)).
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ANNEX B
EXCERPT FROM THE FLORIDA BUSINESS CORPORATION ACT
RELATING TO RIGHTS OF DISSENTING SHAREHOLDERS
607.1301 DISSENTER'S RIGHTS; DEFINITIONS. -- The following
definitions apply to ss. 607.1302 and 607.132:
(1) "Corporation" means the issuer of the shares held by a
dissenting shareholder before the corporate action or the surviving or
acquiring corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the
value of the shares as of the close of business on the day prior to the
shareholders' authorization date, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would be
inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a
copy of the plan of merger was mailed to each shareholder of record of the
subsidiary corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT -- (1) Any shareholder
has the right to dissent from, and obtain payment of the fair value of his
shares in the event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its
parent under s. 607.1104, and the shareholders would have been entitled to
vote on action taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation, other than in the usual and
regular course of business, if the shareholder is entitled to vote on the sale
or exchange pursuant to s. 607. 1202, including a sale in dissolution but not
including a sale pursuant to court order or a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the
corporation is a party as the corporation the shares of which will be
acquired, if the shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the
shareholder is entitled to vote on the amendment and if such amendment would
adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of
his shares;
2. Altering or abolishing the voting rights pertaining to any of
his shares, except as such rights may be affected by the voting rights of
new shares then being authorized of any existing or new class or series of
shares;
3. Effecting an exchange, cancellation, or reclassification of
any of his shares, when such exchange, cancellation, or reclassification
would alter or abolish his voting rights or alter his percentage of equity
in the corporation, or effecting a reduction or cancellation of accrued
dividends or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of his redeemable
shares, altering or abolishing any provision relating to any sinking fund for
the redemption or purchase of any of his shares, or making any of his shares
subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any of
his preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his preferred
shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares;
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(2) A shareholder dissenting from any amendment specified in
paragraph (1)(e) has the right to dissent only as to those of his shares
which are adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares
registered in his name. In that event, his rights shall be determined as
if the shares as to which he has dissented and his other shares were
registered in the names of different shareholders;
(4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or share exchange or a
proposed sale or exchange of property, to the holders of shares of any class
or series which, on the record date fixed to determine the shareholders
entitled to vote at the meeting of shareholders at which such action is to
be acted upon or to consent to any such action without a meeting, were either
registered on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., or held of record by not fewer than
2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his
shares under this section may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect
to the shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS -- (1)(a)
If a proposed corporate action creating dissenters' rights under s. 607.1320
is submitted to a vote at a shareholders' meeting, the meeting notice shall
state that shareholders are or may be entitled to assert dissenters' rights
and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action
is effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy or
vote against the proposed action does not constitute such a notice of intent to
demand payment.
(b) If proposed corporate action creating dissenters' rights under
s. 607.1302 is effectuated by written consent without a meeting, the
corporation shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320
to each shareholder simultaneously with any request for his written consent
or, if such a request is not made, within 10 days after the date the
corporation received written consents without a meeting from the requisite
number of shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder
who filed a notice of intent to demand payment for his shares pursuant to
paragraph (1)(a) or, in the case of action authorized by written consent,
to each shareholder, excepting any who voted for, or consented in writing
to, the proposed action.
(3) Within 20 days after the giving of notice to him, any
shareholder who elects to dissent shall file with the corporation a notice
of such election, stating his name and address, the number, classes, and
series of shares as to which he dissents, and a demand for payment of the
fair value of his shares. Any shareholder failing to file such election to
dissent within the period set forth shall be bound by the terms of the
proposed corporate action. Any shareholder filing an election to
dissent shall deposit his certificates for certificated shares with the
corporation simultaneously with the filing of the election to dissent. The
corporation may restrict the transfer of uncertificated shares from the date
the shareholder's election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder
shall thereafter be entitled only to payment as provided in this section and
shall not be entitled to vote or to exercise any other rights of a
shareholder. A notice of election may be withdrawn in writing by the
shareholder at any time before an offer is made by the corporation, as
provided in subsection (5), to pay for his shares. After such offer, no such
notice of election may be withdrawn unless the corporation consents
thereto. However, the right of such shareholder to be paid the fair value
of his shares shall cease, and he shall be reinstated to have all his rights
as a shareholder as of the filing of his notice of election, including
any intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu
thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion,
but without prejudice otherwise to any corporate proceedings that may have
been taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
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(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by
a court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such
shareholder is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which
shareholders may file their notices of election to dissent, or within 10 days
after such corporate action is effected, whichever is later (but in no case
later than 90 days from the shareholders' authorization date), the
corporation shall make a written offer to each dissenting shareholder who
has made demand as provided in this section to pay an amount the corporation
estimates to be the fair value for such shares. If the corporate action has
not been consummated before the expiration of the 90-day period after the
shareholders' authorization date, the offer may be made conditional upon the
consummation of such action. Such notice and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any
shareholder accepts the same, payment for his shares shall be made within 90
days after the making of such offer or the consummation of the proposed
action, whichever is later. Upon payment of the agreed value, the dissenting
shareholder shall cease to have any interest in such shares.
(7) If the corporation fails to make such offer within the period
specified therefor in subsection (5) or if it makes the offer and any
dissenting shareholder or shareholders fail to accept the same within the
period of 30 days thereafter, then the corporation, within 30 days after
receipt of written demand from any dissenting shareholder given within 60
days after the date on which such corporate action was effected, shall, or
at its election at any time within such period of 60 days may, file an
action in any court of competent jurisdiction in the county in this state
where the registered office of the corporation is located requesting that
the fair value of such shares be determined. The court shall also
determine whether each dissenting shareholder, as to whom the corporation
requests the court to make such determination, is entitled to receive payment
for his shares. If the corporation fails to institute the proceeding as
herein provided, any dissenting shareholder may do so in the name of the
corporation. All dissenting shareholders (whether or not residents of this
state), other than shareholders who have agreed with the corporation as to the
value of their shares, shall be made parties to the proceeding as an action
against their shares. The corporation shall serve a copy of the initial
pleading in such proceeding upon each dissenting shareholder who is a
resident of this state in the manner provided by law for the service of a
summons and complaint and upon each nonresident dissenting shareholder either
by registered or certified mail and publication or in such other manner as
is permitted by law. The jurisdiction of the court is plenary and exclusive.
All shareholders who are proper parties to the proceeding are entitled to
judgment against the corporation for the amount of the fair value of their
shares. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers shall have such power and authority as is
specified in the order of their appointment or an amendment thereof.
The corporation shall pay each dissenting shareholder the amount found to be
due him within 10 days after final determination of the proceedings. Upon
payment of the judgment, the dissenting shareholder shall cease to have any
interest in such shares.
(8) The judgment may, at the discretion of the court, include a
fair rate of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be
determined by the court and shall be assessed against the corporation, but
all or any part of such costs and expenses may be apportioned and assessed
as the court deems equitable against any or all of the dissenting
shareholders who are parties to the proceeding, to whom the corporation has
made an offer to pay for the shares, if the court finds that the action of
such shareholders in failing to accept such offer was arbitrary, vexatious,
or not in good faith. Such expenses shall include reasonable compensation
for, and reasonable expenses of, the appraisers, but shall exclude the fees
and expenses of counsel for, and experts employed by, any party. If the fair
value of the shares, as determined, materially exceeds the amount which the
corporation offered to pay therefor or if no offer was made, the court in its
discretion may award
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to any shareholder who is a party to the proceeding such sum as the
court determines to be reasonable compensation to any attorney or expert
employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the
agreed value thereof or pursuant to payment of the judgment entered therefor,
as provided in this section, may be held and disposed of by such corporation
as authorized but unissued shares of the corporation, except that, in the
case of a merger, they may be held and disposed of as the plan of merger
otherwise provides. The shares of the surviving corporation into which
the shares of such dissenting shareholders would have been converted had they
assented to the merger shall have the status of authorized but unissued shares
of the surviving corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The provisions of the Florida Business Corporation Act and CBI's
Bylaws set forth the extent to which the Registrant's directors and officers
may be indemnified against liabilities they may incur while serving in such
capacities. CBI's Bylaws provide that a director who performs his duties under
the bylaws in good faith shall have no liability by reason of being or having
been a director of the corporation. The Florida Business Corporation Act's
("FBCA") provisions for indemnification are summarized below.
Section 607.0850(1) of the FBCA empowers a corporation to indemnify
any person who was or is a party to any proceeding (other than an action by, or
in right of, the corporation), by reason of the fact that he is or was a
director. officer, employee, or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against liability incurred in connection with such proceeding, including any
appeal thereof, if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. This Subsection further provides that the
termination of proceeding by judgment, order, settlement, or conviction or upon
a plea of nolo contenders or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the beat interests of the
corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 607.0850(2) empowers a corporation to indemnify any person who
was or is a party to any proceeding by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other Enterprise,
against expenses and amounts paid in settlement not exceeding, in the judgment
of the board of directors, the estimated expense of litigating the proceeding
to conclusion, actually and reasonably incurred in connection with the defense
or settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests
of the corporation, except that no indemnification may be made in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
Section 607.0850(3) provides that to the extent that a director,
officer, employee, or agent of a corporation has been successful on the merits
or otherwise in the defense of any proceeding referred to in the preceding
subparagraphs, or in defense of any claim, issue, or matter therein, he shall
be indemnified against expenses actually and reasonably incurred by him in
connection therewith.
Section 607.0850(4) provides that any indemnification under
subsections (1) or (2), unless pursuant to a determination by a court, shall be
made by the corporation only as authorized in a specific case upon a
determination that indemnification of the director, officer, employee, or agent
is proper in the circumstances because the person has met the applicable
standard of conduct as set forth in subsections (1) or (2). Such determination
shall be made (a) by the Board of Directors by a majority vote of a quorum
consisting of directors who are not parties to such proceeding; (b) if such a
quorum is not obtaining or, even if obtainable, by majority vote of a committee
duly designated by the board of directors (in which directors who are parties
may participate) consisting solely of two or more directors who are not at the
time parties to the proceeding; (c) by independent legal counsel selected by
the board of directors described in paragraph (a) or the committee described in
paragraph
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(b), or if a quorum of the directors cannot be obtained for paragraph (a) and
the committee cannot be designated under paragraph (b), selected by a majority
vote of the full board of directors (in which directors who are parties may
participate); or 9d) by the shareholders by a majority vote of a quorum
consisting of shareholders who are not parties to such proceeding or, if no
such quorum is obtainable, by a majority vote of shareholders who were not
parties to such proceeding.
Section 607.0850(5) provides that evaluation of the reasonableness of
expenses and authorization of indemnification shall be made in the same manner
as the determination that indemnification is permissible. However, if the
determination of permissibility is made by independent legal counsel, persons
specified by paragraph 4(c) shall evaluate the reasonableness of expenses and
may authorize indemnification.
Section 607.0850(6) provides that expenses incurred by an officer or
director in defending a civil or criminal proceeding may be paid by the
corporation in advance of the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if he is ultimately found not to be entitled to indemnification by the
corporation. Expenses incurred by other employees and agents may be paid in
advance upon terms or conditions that the board of directors deems appropriate.
Section 607.0850(7) provides that the indemnification and advancement
of expenses provided pursuant to this section are not exclusive, and the
corporation is empowered to make any other or further indemnification or
advancement of expenses of any of its directors, officers, employees, or
agents, under any bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, unless a judgment or
other final adjudication establishes that such person's actions or omissions to
act were material to the cause of action so adjudicated and constitute (a) a
violation of the criminal law, unless such person had reasonable cause to
believe that his conduct was lawful or had no reasonable cause to believe that
his conduct was unlawful; (b) a transaction from which such person derived an
improper personal benefit; (c) in the case of a director, a circumstance under
which the liability provisions of Section 607.0834 of the Florida Business
Corporation Act are applicable; or (d) willful misconduct or a conscious
disregard for the best interests of the corporation in a proceeding by or in
the right of the corporation to procure a judgment in its favor, or in a
proceeding by or in the right of a shareholder.
Section 607.0850(8) provides that indemnification and advancement of
expenses shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee, or
agent, and shall inure to the benefit of such person's heirs, executors and
administrators unless otherwise provided when authorized or ratified.
Section 607.0850(9) provides that unless the corporation's articles of
incorporation provide otherwise notwithstanding the failure of a corporation to
provide indemnification and despite any contrary determination of the board or
of the shareholders of the specific case, a director, officer, employee, or
agent who is or was a party to a proceeding may apply for indemnification or
advancement of expenses, or both, to the court conducting the proceeding, to
the circuit court, or to another court of competent jurisdiction. On receipt
of an application, the court, after giving any notice that it considers
necessary, may order indemnification and advancement notice that it considers
necessary, may order indemnification and advancement of expenses, including
expenses incurred in seeking court-ordered indemnification or advancement of
expenses, if it determines that (a) the director, officer, employee, or agent
is entitled to mandatory indemnification under subsection (3), in which case
the court shall also order the corporation to pay the director reasonable
expenses incurred in obtaining court-ordered indemnification or advancement or
expenses; (b) the director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the exercise
by the corporation of its power pursuant to subsection (7); or (c) the
director, officer, employee, or agent is failure and reasonably entitled to
indemnification or advancement of expenses, or both, in view of all the
relevant circumstances, regardless of whether such person meet the standard of
conduct set forth in subsection (1), subsection (2), or subsection (7).
Section 607.0850(12) provides that the corporation is empowered to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint
II-2
<PAGE> 243
venture, trust, or other enterprise against any liability asserted against him
or incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this section.
The Registrant maintains an insurance policy insuring the Registrant
and directors and officers of the Registrant against certain liabilities,
including liabilities under the Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
2(a) -- Agreement and Plan of Merger, dated as of October 19, 1995, by and between CBI and CFB (included in
ANNEX A to the Proxy Statement/Prospectus and incorporated by reference herein)
3(a) -- Articles of Incorporation, as amended (Previously filed in Registrant's Registration Statement on Form
8A, dated April 26, 1990 (File No. 2-82233))
3(b) -- Bylaws(Previously filed in Registrant's Registration Statement on Form 8A, dated April 26, 1990 (File
No. 2-82233))
4 -- See Exhibits 3(a) and 3(b) for provisions of the Certificate of Incorporation and Bylaws of the
Registrant defining rights of holders of Common Stock of the Registrant
5 -- Form of Opinion of Alston & Bird (1)
8 -- Opinion of Alston & Bird regarding federal income tax matters, including consent
10.1 -- Stock Option Agreement between Citi-Bancshares, Inc. and Kenneth W. Mullis (previously filed as an
Exhibit to the Registrant's 1993 Annual Report on Form 10-K (File No. 2-82233)
10.2 -- Citi-Bancshares, Inc. 1994 Stock Option and Stock Appreciation Rights Plan (previously filed as an
Exhibit to the Registrant's 1993 Annual Report on Form 10-K (File No. 2-82233)
21 -- Subsidiary of the Registrant (1)
23(a) -- Consent of Purvis, Gray and Company
23(b) -- Consent of Alston & Bird (included in Exhibit 5)
23(c) -- Consent of Terry E. Trexler (1)
23(d) -- Consent of Financial Institutions Advisory Services, Inc. (2)
23(e) -- Consent of The Carson Medlin Company (2)
24 -- Powers of Attorney (1)
99 -- Form of Proxy of CFB (1)
- --------------------------
</TABLE>
(1) Previously filed with the Registrant's registration statement on Form S-4
(333-00008) filed January 2, 1996.
(2) Previously filed with Pre-Effective Amendment No. 1 (filed March 5, 1996) to
the Registrant's registration statement on Form S-4 (333-00008) filed
January 2, 1996
II-3
<PAGE> 244
(b) Financial Statement Schedules
Schedules are omitted because they are not required or are not applicable,
or the required information is shown in the financial statements or notes
thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the Registrant's Articles of
Incorporation or Bylaws, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-4
<PAGE> 245
(c) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-5
<PAGE> 246
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Leesburg,
State of Florida, on March 13, 1996.
CITI-BANCSHARES, INC.
By: /s/ KENNETH W. MULLIS
-------------------------------------
Kenneth W. Mullis
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on March 13, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
* Chairman of the Board
- ----------------------------------
Clifton L. Bridges, M.D.
/S/ KENNETH W. MULLIS President and Chief Executive Officer
- ---------------------------------- (principal executive officer)
Kenneth W. Mullis
* Senior Vice President, Chief Financial Officer and Secretary
- ---------------------------------- (principal financial and accounting officer)
T. Michael Killingsworth
* Director
- ----------------------------------
Bobby A. Sullivan
* Director
- ----------------------------------
Douglas W. Braun
* Director
- ----------------------------------
W. Thomas Brooks
* Director
- ----------------------------------
Thomas N. Grizzard
</TABLE>
[Signatures continued on following page]
II-6
<PAGE> 247
<TABLE>
<S> <C>
* Director
- ----------------------------------
W.F. Herlong, Jr.
* Director
- ----------------------------------
Wendell F. Husebo
* Director
- ----------------------------------
Walter S. McLin
* Director
- ----------------------------------
Linda Spradlin
* Director
- ----------------------------------
Ferrell D. Young, D.V.M.
By:/s/ Kenneth W. Mullis Attorney-in-Fact
- ----------------------------------
Kenneth W. Mullis
</TABLE>
II-7
<PAGE> 248
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION OF EXHIBITS UMBER
- ------ ----------------------- ---------------
<S> <C>
2(a) Agreement and Plan of Merger, dated as of October 19, 1995,
by and between CBI and CFB (included in ANNEX A to the Proxy
Statement/Prospectus and incorporated by reference herein)
3(a) Articles of Incorporation, as amended (Previously filed in
Registrant's Registration Statement on Form 8A, dated April
26, 1990 (File No. 2-82233))
3(b) Bylaws(Previously filed in Registrant's Registration
Statement on Form 8A, dated April 26, 1990 (File No.
2-82233))
4 See Exhibits 3(a) and 3(b) for provisions of the Certificate
of Incorporation and Bylaws of the Registrant defining rights
of holders of Common Stock of the Registrant
5 Form of Opinion of Alston & Bird (1)
8 Opinion of Alston & Bird regarding federal income tax
matters, including consent
10.1 Stock Option Agreement between Citi-Bancshares, Inc. and
Kenneth W. Mullis (previously filed as an Exhibit to the
Registrant's 1993 Annual Report on Form 10-K (File No.
2-82233)
10.2 Citi-Bancshares, Inc. 1994 Stock Option and Stock
Appreciation Rights Plan (previously filed as an Exhibit to
the Registrant's 1993 Annual Report on Form 10-K (File No.
2-82233)
21 Subsidiary of the Registrant (1)
23(a) Consent of Purvis, Gray and Company
23(b) Consent of Alston & Bird (included in Exhibit 5)
23(c) Consent of Terry E. Trexler (1)
23(d) Consent of Financial Institutions Advisory Services, Inc. (2)
23(e) Consent of The Carson Medlin Company (2)
24 Powers of Attorney (1)
99 Form of Proxy of CFB (1)
</TABLE>
__________________________
(1) Previously filed with the Registrant's registration statement on Form S-4
(333-00008) filed January 2, 1996.
(2) Previously filed with Pre-effective Amendment No. 1 (filed March 5, 1996)
to the Registrant's registration statement on Form S-4 (333-00008) filed
January 2, 1996.
II-1
<PAGE> 1
EXHIBIT 8
ALSTON&BIRD
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404-881-7000
Fax: 404-881-7777 Telex: 54-2996
Philip C. Cook Direct Dial (404) 881-7491
March 13, 1996
Citi-Bancshares, Inc.
1211 North Boulevard West
Leesburg, Florida 37401
Citizens First Bancshares, Inc.
750 Southwest Martin Luther King, Jr. Blvd.
Ocala, Florida 34478
Re: PROPOSED AGREEMENT AND PLAN OF MERGER INVOLVING
CITIZENS FIRST BANCSHARES, INC., CITI-BANCSHARES, INC., AND
CITIZENS FIRST BANK OF OCALA
Ladies and Gentlemen:
We have acted as counsel to Citi-Bancshares, Inc. ("CBI") in connection
with the proposed merger of Citizens First Bancshares, Inc. ("CFB") with and
into CBI, with CBI as the surviving entity (the "Parent Merger"), and the
proposed merger by Citizens First Bank of Ocala (the "Bank"), a wholly-owned
subsidiary of CFB, with and into Citizens National Bank of Leesburg ("CNBL"), a
wholly-owned subsidiary of CBI, with CNBL as the surviving entity (the "Bank
Merger") (collectively, the "Mergers"). The Parent Merger will be effected
pursuant to the Agreement and Plan of Merger by and between CFB and CBI dated
as of October 19, 1995 (the "Agreement"). The Bank Merger will be effected
pursuant to the Plan of Merger of the Bank with and into CNBL, dated as of
October 19, 1995 (the "Bank Plan").
In our capacity as counsel to CBI, our opinion has been requested with
respect to certain of the federal income tax consequences of the proposed
Mergers.
In rendering this opinion, we have examined (i) the Internal Revenue Code
of 1986, as amended (the "Code"), and Treasury Regulations thereunder, (ii) the
legislative history of applicable sections of the Code, and (iii) appropriate
Internal Revenue Service and court decisional authority. In addition, we have
relied upon certain assumptions as more fully described below. All capitalized
terms used herein without definition shall have the respective meanings
specified in the Agreement and Bank Plan, and, unless otherwise specified, all
section references herein are to the Code.
INFORMATION RELIED UPON
In rendering the opinions expressed herein, we have examined such
documents as we have deemed appropriate, including:
(1) the Agreement;
(2) the Bank Plan;
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<PAGE> 2
(3) the Registration Statement that is being filed with the Securities
and Exchange Commission regarding the Parent Merger, which
includes the preliminary Proxy Statement/Prospectus; and
(4) such additional documents as we have considered relevant.
In our examination of such documents, we have assumed, with your consent,
that all documents submitted to us as photocopies faithfully reproduce the
originals thereof, that such originals are authentic, that all such documents
have been or will be duly executed to the extent required, and that all
statements set forth in such documents are accurate.
We have also obtained such additional information and representations as
we have deemed relevant and necessary through consultation with various
officers and representatives of CBI, CFB and the Bank.
You have advised us that the proposed transaction will enable the combined
organization to realize certain economies of scale, yield a wider array of
services to consumers and businesses, and provide for a stronger market
position and for greater financial resources to meet competitive challenges.
To achieve these goals, the following will occur pursuant to the Agreement and
the Bank Plan:
A. The Parent Merger.
(1) CFB will merge with and into CBI under the laws of the State of
Florida. CBI shall be the Surviving Corporation and shall continue to be
governed by the laws of the State of Florida.
(2) At the Effective Time, by virtue of the Parent Merger, and without any
action on the part of CBI, CFB or the shareholders of any of the foregoing, the
shares of the constituent corporations shall be converted as follows:
(a) Each share of CBI Capital Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.
(b) Each share of CFB Common Stock (excluding shares held by any CFB
Company or any CBI Company, in each case other than in a fiduciary capacity or
as a result of debts previously contracted, and excluding shares held by
shareholders who perfect their statutory dissenters' rights as provided in
Section 3.4 of the Agreement) issued and outstanding at the Effective Time
shall cease to be outstanding and shall be converted into and exchanged for the
right to receive that number of shares of CBI Common Stock equal to 425,000
divided by the number of shares of CFB Common Stock issued and outstanding at
the Effective Time (the "Exchange Ratio"). In the event CFB or CBI changes the
number of shares of CFB Common Stock or CBI Common Stock, respectively, issued
and outstanding prior to the Effective Time as a result of a stock split, stock
dividend, or similar recapitalization with respect to such stock and the record
date therefor (in the case of a stock dividend) or the effective date thereof
(in the case of a stock split or similar recapitalization for which a record
date is not established) shall be prior to the Effective Time, the Exchange
Ratio shall be proportionately adjusted.
(3) Each of the shares of CFB Common Stock held by any CFB Company or by
any CBI Company, in each case other than in a fiduciary capacity or as a result
of debts previously contracted, shall be canceled and retired at the Effective
Time, and no consideration shall be issued in exchange therefor.
(4) Any holder of shares of CFB Common Stock who perfects his dissenters'
rights in accordance with and as contemplated by Section 607.1301 et
seq.Reference appropriate dissenters' rights provision (e.g., Section 262 of
the Delaware General Corporation Law, Article 13, Part 2 of Title 14 of the
Georgia Business Corporation Code, and Section 10-2A-163 of the Alabama
Business Corporation Act). of the Florida Business Corporation Act ("FBCA")
shall be entitled to receive the value of such shares in cash as determined
pursuant to such provision of Law; provided, that no such payment shall be made
to any dissenting shareholder unless and
-2-
<PAGE> 3
until such dissenting shareholder has complied with all applicable provisions
of the FBCA and surrendered to CFB the certificate or certificates representing
the shares for which payment is being made. In the event that after the
Effective Time a dissenting shareholder of CFB fails to perfect, or effectively
withdraws or loses, his right to appraisal of and payment for his shares, CBI
shall issue and deliver the consideration to which such holder of shares of CFB
Common Stock is entitled under Article 3 of the Agreement (without interest)
upon surrender by such holder of the certificate or certificates representing
shares of CFB Common Stock held by him.
(5) Notwithstanding any other provision of the Agreement, each holder of
shares of CFB Common Stock exchanged pursuant to the Parent Merger who would
otherwise have been entitled to receive a fraction of a share of Common Stock
(after taking into account all certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of Common Stock multiplied by the market value of
one share of CBI Common Stock at the Effective Time. The market value of one
share of CBI Common Stock at the Effective Time shall be the last sale price of
such common stock on the Nasdaq National Market (as reported by The Wall Street
Journal or, if not reported thereby, any other authoritative source) on the
last trading day preceding the Effective Time. No such holder will be entitled
to dividends, voting rights, or any other rights as a shareholder in respect of
any fractional shares.
B. The Bank Merger.
(1) It is proposed that it CBI so directs, the Bank shall be merged with
and into CNBL under the Charter and Articles of Association of CNBL pursuant to
the provisions of and with the effect provided in Title 12, United States Code,
Section 215a. CNBL shall be the surviving bank and the receiving association
resulting from the Bank Merger and shall continue to conduct its business under
the name "Citizens National Bank of Leesburg." The Bank Merger shall be
consummated pursuant to the terms of the Bank Plan, which has been approved and
adopted by the respective Boards of Directors and shareholders of CNBL and the
Bank.
(2) All of the shares of CNBL Common Stock issued and outstanding at the
Effective Time shall remain issued and outstanding after the Effective Time and
shall be unaffected by the Bank Merger. At the Effective Time, the
certificates representing all of the issued and outstanding shares of the Bank
Common Stock shall be surrendered to CNBL for cancellation and no consideration
shall be issued in exchange therefor.
With your consent, we have also assumed that the following statements are
true on the date hereof and will be true on the date(s) on which the Mergers
are consummated:
A. The Parent Merger.
(1) The fair market value of the CBI Common Stock received by the
shareholders of CFB will be, in each instance, approximately equal to the fair
market value of the CFB Common Stock surrendered in exchange therefor.
(2) There is no plan or intention on the part of the shareholders of CFB
who own one percent (1%) or more of the CFB Common Stock, and to the best of
the knowledge of the management of CFB, there is no plan or intention on the
part of the remaining shareholders of CFB to sell, exchange or otherwise
dispose of a number of shares of CBI Common Stock to be received in the
proposed transaction that would reduce their holdings in CBI Common Stock to a
number of shares having, in the aggregate a value as of the Effective Time of
less than fifty percent (50%) of the total value of all of the stock of CFB
outstanding immediately prior to the Effective Time. For purposes of this
representation, shares of CFB Common Stock exchanged for cash or other property
surrendered by dissenters or exchanged for cash in lieu of fractional shares of
CBI Common Stock will be treated as outstanding CFB Common Stock as of the
Effective Time. Moreover, shares of CFB Common Stock and shares of CBI Common
Stock held by
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<PAGE> 4
CFB shareholders and otherwise sold, redeemed or disposed of prior or
subsequent to the transaction will be considered in making this representation.
(3) CBI has no plan or intention to reacquire any of its stock issued in
the transaction.
(4) Other than as may be deemed to occur as a result of effecting the Bank
Merger, CBI has no plan or intention to sell or otherwise dispose of any of the
assets of CFB acquired in the transaction, except for dispositions made in the
ordinary course of its business or transfers to a corporation controlled by
CBI. For purposes of this letter, "control" means ownership of stock possessing
at least 80 percent of the total combined voting power of all classes of stock
entitled to vote and at least 80 percent of the total number of shares of all
other classes of stock of the corporation in question.
(5) The liabilities of CFB assumed by CBI and the liabilities to which the
transferred assets of CFB are subject were incurred by CFB in the ordinary
course of its business.
(6) Following the transaction, CBI will continue the historic business of
CFB or use a significant portion of CFB's historic business assets in a
business.
(7) CBI, CFB, and the shareholders of CFB will pay their respective
expenses, if any, incurred in connection with the Parent Merger, except as
otherwise provided in Section 11.2(a) of the Agreement.
(8) There is no intercorporate indebtedness existing between CFB and CBI
that was issued, acquired, or will be settled at a discount.
(9) CFB is not under the jurisdiction of a court in a Title 11 of the
United States Code or a receivership, foreclosure or similar proceeding in a
federal or state court.
(10) The fair market value and the total adjusted basis of the assets of
CFB transferred to CBI will each equal or exceed the sum of the liabilities
assumed by CBI plus the amount of the liabilities, if any, to which the
transferred assets are subject.
(11) The payment of cash in lieu of fractional shares of CBI Common Stock
is solely for the purpose of avoiding the expense and inconvenience to CBI of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the
transaction to the CFB shareholders instead of issuing fractional shares of CBI
Common Stock will not exceed one percent (1%) of the total consideration that
will be issued in the transaction to the CFB shareholders in exchange for their
shares of CFB Common Stock. The fractional share interests of each CFB
shareholder will be aggregated, and no CFB shareholder will receive cash in an
amount equal to or greater than the value of one full share of CBI Common
Stock.
(12) None of the compensation received by any shareholder-employees of CFB
will be separate consideration for, or allocable to, any of their shares of CFB
Common Stock; none of the shares of CBI Common Stock received by any
shareholder-employees will be separate consideration for, or allocable to, any
employment agreement or arrangement. Any compensation to be paid to a CFB
shareholder-employee who continues as an employee of CBI subsequent to the
Parent Merger will be for services rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
(13) At all times during the five-year period ending on the effective date
of the Parent Merger, the fair market value of all of CFB's United States real
property interests was and will have been less than fifty percent (50%) of the
total fair market value of (a) its United States real property interests, (b)
its interests in real property located outside the United States, and (c) its
other assets used or held for use in a trade or business. For purposes of the
preceding sentence, (x) United States real property interests include all
interests (other than an interest solely as a creditor) in real property and
associated personal property
-4-
<PAGE> 5
(such as movable walls and furnishings) located in the United States or the
Virgin Islands and interests in any corporation (other than a controlled
corporation) owning any United States real property interest, (y) CFB is
treated as owning its proportionate share (based on the relative fair market
value of its ownership interest to all ownership interests) of the assets owned
by any controlled corporation or any partnership, trust, or estate in which CFB
is a partner or beneficiary, and (z) any such entity in turn is treated as
owning its proportionate share of the assets owned by any controlled
corporation or any partnership, trust, or estate in which the entity is a
partner or beneficiary. As used in this paragraph, "controlled corporation"
means any corporation at least fifty percent (50%) of the fair market value of
the stock of which is owned by CFB, in the case of a first-tier subsidiary of
CFB, or by a controlled corporation, in the case of a lower-tier subsidiary.
(14) For each of CBI and CFB, not more than twenty-five percent (25%) of
the fair market value of its adjusted total assets consists of stock and
securities of any one issuer, and not more than fifty percent (50%) of the fair
market value of its adjusted total assets consists of stock and securities of
five or fewer issuers. For purposes of the preceding sentence, (a) a
corporation's adjusted total assets exclude cash, cash items (including
accounts receivable and cash equivalents), and United States government
securities, (b) a corporation's adjusted total assets exclude stock and
securities issued by any subsidiary at least fifty percent (50%) of the voting
power or fifty percent (50%) of the total fair market value of the stock of
which is owned by the corporation, but the corporation is treated as owning
directly a ratable share (based on the percentage of the fair market value of
the subsidiary's stock owned by the corporation) of the assets owned by any
such subsidiary, and (c) all corporations that are members of the same
"controlled group" within the meaning of section 1563(a) of the Code are
treated as a single issuer.
(15) The Agreement represents the entire understanding of CFB and CBI with
respect to the Parent Merger.
B. The Bank Merger.
(1) The Bank will transfer to CNBL assets representing at least ninety
percent (90%) of the fair market value of its assets and at least seventy
percent (70%) of the fair market value of its gross assets held immediately
prior to the proposed transaction. For purposes of this representation, assets
used by the Bank to pay its expenses incurred in connection with the proposed
transaction, and all redemptions and distributions (except for regular and
normal distributions) made immediately preceding the transfers and which are
part of the plan of reorganization will be included as assets of the Bank held
immediately prior to the proposed transaction.
(2) Prior to the transaction, CBI will be in control of CNBL.
(3) Following the transaction, CNBL will not issue additional shares of
stock that would result in CBI losing control of CNBL.
(4) CBI has no plan or intention to liquidate CNBL; to merge CNBL with and
into another corporation; to sell or otherwise dispose of the stock of CNBL; or
to cause CNBL to sell or otherwise dispose of any of the assets of the Bank
acquired in the transaction, except for dispositions made in the ordinary
course of business or transfers to a corporation controlled by CNBL.
(5) The liabilities of the Bank assumed by CNBL and the liabilities to
which the transferred assets of the Bank are subject were incurred by the Bank
in the ordinary course of its business.
(6) Following the transaction, CNBL will continue the historic business of
the Bank or use a significant portion of the Bank's historic business assets in
a business.
(7) The Bank and CNBL will pay their respective expenses, if any, incurred
in connection with the transaction.
-5-
<PAGE> 6
(8) There is no intercorporate indebtedness existing between CNBL and the
Bank that was issued, acquired, or will be settled at a discount.
(9) For each of the Bank and CNBL, not more than twenty-five percent (25%)
of the fair market value of its adjusted total assets consists of stock and
securities of any one issuer, and not more than fifty percent (50%) of the fair
market value of its adjusted total assets consists of stock and securities of
five or fewer issuers. For purposes of the preceding sentence, (a) a
corporation's adjusted total assets exclude cash, cash items (including
accounts receivable and cash equivalents), and United States government
securities, (b) a corporation's adjusted total assets exclude stock and
securities issued by any subsidiary at least fifty percent (50%) of the voting
power or fifty percent (50%) of the total fair market value of the stock of
which is owned by the corporation, but the corporation is treated as owning
directly a ratable share (based on the percentage of the fair market value of
the subsidiary's stock owned by the corporation) of the assets owned by any
such subsidiary, and (c) all corporations that are members of the same
"controlled group" within the meaning of section 1563(a) of the Code are
treated as a single issuer.
(10) The Bank is not under the jurisdiction of a court in a Title 11 of
the United States Code or a receivership, foreclosure or similar proceeding in
a federal or state court.
(11) The fair market value and total adjusted basis of the assets of the
Bank transferred to CNBL will each equal or exceed the sum of the liabilities
assumed by CNBL, plus the amount of liabilities, if any, to which the
transferred assets are subject.
(12) The Bank Plan represents the entire understanding of the Bank and
CNBL with respect to the Bank Merger.
OPINIONS
Based solely on the information submitted and the representations set
forth above, we are of the opinion that:
A. The Parent Merger.
(1) Provided the proposed merger of CFB with and into CBI qualifies as a
statutory merger under Florida law, the merger will be a reorganization within
the meaning of section 368(a) of the Code. CFB and CBI will each be "a party
to a reorganization" within the meaning of section 368(b) of the Code.
(2) CFB will recognize no gain or loss upon the transfer of its assets to
CBI in exchange solely for CBI Common Stock and the assumption by CBI of the
liabilities of CFB. Sections 361(a) and 357(a).
(3) No gain or loss will be recognized by CBI on receipt of CFB's assets
in exchange for CBI Common Stock. Section 1032(a).
(4) The basis of CFB's assets in the hands of CBI will, in each case, be
the same as the basis of those assets in the hands of CFB immediately prior to
the transaction. Section 362(b).
(5) The holding period of the assets of CFB in the hands of CBI will, in
each case, include the period during which such assets were held by CFB.
Section 1223(2).
(6) The shareholders of CFB will recognize no gain or loss upon the
exchange of their CFB Common Stock solely for shares of CBI Common Stock.
Section 354(a)(1).
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(7) The basis of the CBI Common stock received by the CFB shareholders in
the proposed transaction will, in each instance, be the same as the basis of
the CFB Common Stock surrendered in exchange therefor. Section 358(a)(1).
(8) The holding period of the CBI Common Stock received by the CFB
shareholders will, in each instance, include the period during which CFB shares
surrendered therefor were held, provided that the CFB shares are held as a
capital asset on the date of the exchange. Section 1223(1).
(9) The payment of cash to CFB shareholders in lieu of fractional share
interests of CBI Common Stock will be treated for federal income tax purposes
as if the fractional shares were distributed as part of the exchange and then
were redeemed by CBI. These cash payments will be treated as having been
received as distributions in full payment in exchange for the stock redeemed as
provided in section 302(a) of the Code. Any gain or loss recognized upon such
exchange will be capital gain or loss, provided the fractional share
constitutes a capital asset in the hands of the exchanging shareholder. Rev.
Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc. 77-41, 1977-2 C.B. 574.
(10) Where solely cash is received by a CFB shareholder in exchange for
his CFB Common Stock pursuant to the exercise of dissenter's rights, such cash
will be treated as having been received in redemption of his CFB Common Stock,
subject to the provisions and limitations of section 302 of the Code.
B. The Bank Merger.
(1) Provided the proposed merger of the Bank with and into CNBL qualifies
as a statutory merger under the applicable laws of the State of Florida, the
transaction will constitute a reorganization within the meaning of section
368(a) of the Code. CNBL and the Bank will each be "a party to a
reorganization" within the meaning of section 368(b) of the Code. Rev. Rul.
68-526, 1968-2 C.B. 156; Rev. Rul. 57-278, 1957-1 C.B. 124.
(2) No gain or loss will be recognized by the Bank on the transfer of its
assets to CNBL in constructive exchange for CNBL Common Stock and the
assumption by CNBL of the Bank's liabilities. Sections 361 and 357(a). In
addition, no gain or loss will be recognized by CFB or CBI as a result of the
Bank Merger.
(3) No gain or loss will be recognized by CNBL on the receipt of the
Bank's assets in constructive exchange for CNBL Common Stock and the assumption
by CNBL of the Bank's liabilities. Section 1032(a).
(4) The basis of the Bank's assets acquired by CNBL will be the same in
the hands of CNBL as the basis of those assets in the hands of the Bank
immediately prior to the exchange. Section 362(b).
(5) The holding period of the assets of the Bank in the hands of CNBL will
include, in each instance, the period during which such assets were held by the
Bank. Section 1223(2).
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time
with retroactive effect. In addition, our opinions are based solely on the
documents that we have examined, the additional information that we have
obtained, and the statements set out herein, which we have assumed and you have
confirmed to be true on the date hereof and will be true on the date(s) on
which the proposed exchanges are consummated. Our opinions cannot be relied
upon if any of the facts contained in such documents or if such additional
information is, or later becomes, inaccurate, or if any of the statements set
out herein is, or later becomes, inaccurate. Finally, our opinions are limited
to the tax matters specifically covered thereby, and we have not been asked to
address, nor have we addressed, any other tax consequences of the Mergers,
including for example
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any issues related to intercompany transactions, accounting methods, or changes
in accounting methods resulting from the Mergers.
This opinion is being provided solely for the benefit of CBI, CFB, CNBL,
the Bank and their shareholders. No other person or party shall be entitled to
rely on this opinion.
We hereby consent to the use of this opinion and to the references made to
the firm under the captions "Certain Federal Income Tax Consequences of the
Merger" and "Description of the Transaction--Certain Federal Income Tax
Consequences of the Merger" in the Proxy Statement constituting part of the
Registration Statement on Form S-4 of CBI.
Very truly yours,
ALSTON & BIRD
By: /s/ Pinney L. Allen
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Pinney L. Allen
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EXHIBIT 23(a)
CONSENT OF PURVIS GRAY AND COMPANY
We hereby consent to the use of our reports dated February 14, 1995,
and January 31, 1995, relating to the consolidated financial statements of
Citizen First Bancshares, Inc. and Citi-Bancshares, Inc. respectively, included
in the Registration Statement on Form S-4. We also consent to the reference to
us under the heading "Experts" in the Proxy Statement/Prospectus constituting
part of such Registration Statement on Form S-4.
/s/ PURVIS GRAY & COMPANY
Gainsville, Florida
March 13, 1996
